Performance Season, Future Directions

[Asia Economy Reporter Song Hwajeong] Variables influencing future stock prices are expected to shift from interest rates to corporate earnings. It is necessary to verify whether the market's pre-reflected expectations of earnings improvement are appropriate.

According to IBK Investment & Securities on the 23rd, focusing on companies that have announced preliminary earnings, operating profits for the fourth quarter of last year are about 3% below market expectations (consensus).

Soeun An, a researcher at IBK Investment & Securities, said, "The U.S. interest rate rise risk that started with the Blue Wave has settled for now, but valuation pressures still remain, and the KOSPI has not surpassed its previous high," adding, "Now, market attention is expected to shift to earnings. Although the interest rate risk has subsided, earnings are the part that can offset the remaining valuation burden."

There is an opinion that even without an earnings surprise, the market sentiment will not suddenly deteriorate. In the case of Samsung Electronics, which announced preliminary earnings earlier this month, earnings fell short of consensus, but the stock price rose sharply. Researcher An explained, "It can be seen that the market focused more on the possibility of future earnings improvement than on past earnings weakness."

Since the end of last year, the KOSPI's fourth-quarter operating profit consensus has been gradually revised downward, considering the impact of the resurgence of COVID-19 and the seasonality of one-time cost reflections. On the other hand, the annual operating profit consensus for this year has been steadily rising.

Recent indicators confirm conditions that explain expectations for earnings improvement. The rapid decrease in new domestic COVID-19 cases and the easing of social distancing measures are favorable for the domestic economy. Domestic exports recorded double-digit growth in December last year without the base effect of COVID-19, and this trend has continued into January. Exports until the 20th of this month increased by 10.6% compared to the previous year.

Researcher An said, "Until additional stimulus possibilities from major countries, base effects of economic indicators, and vaccine effects become visible, the market's formed expectations for earnings recovery will not easily be broken."