Short-Selling Adjustment Market... Buying Opportunity in 'Earning Surprise' Stocks

On the first day of the partial resumption of short selling on the 3rd, the KOSPI index is displayed on the electronic board in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Ji Yeon-jin] Since the resumption of short selling on the 3rd, the domestic stock market has continued its correction phase, and there are indications that it is a good time to buy, especially focusing on stocks with earnings surprises.

According to KB Securities on the 5th, about 60% of all stocks by market capitalization have announced their results in this year's first-quarter earnings season. The first-quarter operating profit of the KOSPI so far has shown a 12% growth compared to the same period last year. This is an 'earnings surprise' exceeding the 10% operating profit growth recorded in the third quarter of last year.

Researcher Kang Min-gyu of KB Securities said, "Although the first-quarter earnings season, which is recording earnings surprises, is moving towards its latter half, there are still stocks that will show surprises."

"The recent correction has provided a good timing to buy stocks expected to have surprises," he added.

Most stocks in semiconductors, banking, steel, and automobiles have completed their earnings announcements, while insurance, telecommunications, utilities, food and beverages, media, hotels and leisure, distribution, transportation, energy, healthcare, and software still have more than half of their stocks yet to announce earnings. Securities, distribution, transportation, energy, and insurance sectors, which have recently seen notable upward revisions in earnings estimates, are expected to report surprise earnings.

Researcher Kang said, "Although caught up in the correction that began at the end of April and entering an oversold state, it is a good time to buy stocks with earnings surprise expectations," adding, "If there are no issues shaking the market other than the resumption of short selling, buying around the low 3100s of the KOSPI is appropriate, and it is possible to target stocks expected to have surprises."

He predicted earnings surprises for SK Innovation, Kumho Petrochemical, Korea Financial Group, and KCC, which recently experienced large declines, as well as for HMM and Lotte Chemical, F&F, which did not see large declines.