[Good Morning Stock Market] "Focus on the Rotation Between Growth Stocks and Value Stocks"

[Asia Economy Reporter Eunmo Koo] This year, growth companies actively increased investments to accumulate growth potential, and among value companies, some invested cash into new growth opportunities. As such, attention should be paid to the rotation between growth and value stocks, focusing on whether growth companies that increased investments can realize profits and whether value stocks can transform into growth stocks.

◆Seungyoung Park, Researcher at Hanwha Investment & Securities=This year, the stock market saw a stark divergence between growth and value stocks. The reason investors favored growth stocks in 2020 is presumed to be due to falling interest rates and the impact of COVID-19, which caused value factors such as dividends to underperform. Additionally, growth companies actively increased investments to accumulate growth potential. In contrast, value companies saw net profits decline to breakeven levels while debt surged. From a quality perspective, growth stocks are judged to be superior to value stocks.

Next year, macroeconomic conditions are unlikely to show the extreme downturns and recoveries seen this year. It will be necessary to classify stocks more finely and develop diverse scenarios. Attention should be paid to companies and sectors that have ample cash and invest this cash into new growth opportunities next year as well.

There are various factors to consider when formulating stock market strategies for next year. These include the global economic recovery and consequent interest rate increases, policies of the new U.S. president, and the establishment of relations with China within that context. I believe the winning strategy should be focused on growth stocks.

While many companies will see profits normalize as the economy approaches last year’s level, it is not possible to win with these stocks alone. One must either overweight or underweight large growth stocks relative to the market to succeed. Stocks that transition from value to growth have the potential to generate alpha.

◆Sangyoung Seo, Researcher at Kiwoom Securities=The U.S. stock market rose on optimism about additional stimulus measures. In particular, large technology stocks, which showed weakness early in the session due to antitrust issues, as well as retail and airline sectors expected to benefit from stimulus, led the gains. Additionally, rising U.S. Treasury yields and international oil prices, along with a weaker dollar, have increased risk appetite, which is positive for the Korean stock market. However, considering that some Republicans still oppose large-scale stimulus and that some of the stimulus expectations have already been priced in, the impact is expected to be limited.

On the other hand, Netflix (-1.00%) reported operating profits and global subscriber numbers below expectations after the U.S. market close, causing its after-hours stock price to fall about 5%, which is a burden. This could increase selling pressure on non-face-to-face related companies that had been strong amid earnings expectations. Furthermore, ongoing U.S. antitrust lawsuits pose additional burdens on technology stocks. Moreover, although negotiations between Pelosi and Mnuchin continue after the U.S. market close, reports indicate significant differences remain, which is a negative factor. Considering these points, the Korean stock market is expected to start higher but then undergo a process of digesting selling pressure. Similar to the U.S. market, it is expected to see a stock-specific market with heightened sensitivity to individual company issues and increased volatility.