Value Stocks Should Be Watched Ahead of Tapering

[Image source=AP Yonhap News]

[Asia Economy Reporter Junho Hwang] As the tapering (reduction of asset purchases) in the United States is expected to begin in earnest by the end of this year, there is a forecast that value stocks, which are expected to benefit from rising commodity prices and interest rates, will perform relatively well.

On the 23rd, Samsung Securities explored this view in a special report titled "Financial Markets and Tapering."

First, Samsung Securities predicted that the key indicators during the tapering and the end of quantitative easing process, expected to start by the end of this year, will behave similarly to those during the 2008 financial crisis. The common characteristics observed during the Federal Reserve's (Fed) asset purchase policy termination, which sets the direction of U.S. monetary policy at that time, can be summarized as economic slowdown, a decline in government bond yields, and a strong dollar. Additionally, as risk appetite weakened, global stock markets fell by about 10 to 20% from their peaks.

However, due to the impact of the financial environment, the timing of the global economic slowdown is likely to be earlier than in the past. This is because supply chain bottlenecks and rising prices of commodities such as oil and natural gas have increased the likelihood of higher inflation.

Signals that inflation is already becoming a burden on the economy have also begun to appear. While U.S. consumer sentiment indicators have been weaker than expected, the cause of the deterioration in consumer sentiment is emerging as the price burden from rising product prices rather than the economy itself. Production disruptions caused by supply chain bottlenecks, combined with cost pressures, have also started to slow corporate activity.

Researcher Seungbin Cho of Samsung Securities stated, "To enhance portfolio stability, securing liquidity centered on the dollar is necessary until the end of the year," adding, "In the case of stocks, value stocks expected to benefit from rising commodity prices and interest rates are anticipated to record relatively good performance until the end of the year."

However, he added, "Considering that a global economic slowdown phase is approaching, the rebound in stock indices should be used as an opportunity to reduce investment weight in stocks," and forecasted, "During the Fed's asset purchase reduction process after the end of the year, expected inflation is likely to decline. From the first half of next year, growth stocks and defensive stocks with differentiated growth potential that can overcome the economic slowdown phase may show favorable trends."