[Asia Economy Reporter Lee Seon-ae] The sorting of growth stocks is expected to proceed in earnest. Growth stocks that have plummeted in the US and Korean stock markets have appeared one after another, prompting investors who are convinced that the stocks have hit the 'bottom' to engage in 'jumjum (bargain hunting)'. However, there is a strong advisory voice cautioning against premature shopping unless supported by solid earnings.
According to financial information provider Refinitiv on the 24th, the price-to-earnings ratios (PER) of Nasdaq growth stocks (including tech stocks) and Russell 1000 growth stocks have fallen by 17.5% and 18.1%, respectively, since the beginning of the year. The decline rate of the PER in the US Tech sector reached up to 40% during the 2000 dot-com bubble burst and the 2008 global financial crisis. In non-crisis situations, the adjustment decline rate is about 20% to 30%. Therefore, if this PER decline is not a crisis phase or bubble burst, it can be seen as a considerable adjustment.
Researcher Heo Jae-hwan of Eugene Investment & Securities said, "It is true that the PER of defensive industries is lower than that of growth industries such as US consumer goods and tech, but the expected earnings-based PER of consumer goods and tech industries has almost returned the increase seen after COVID-19," adding, "The sharp decline trend of growth stocks is likely to calm down, so attention is needed especially on growth stocks (tech stocks) that experienced large drops."
The domestic market is no different. The PER of major sectors in the domestic stock market has also fallen by more than 20% centered on machinery, shipbuilding, hardware, and semiconductors compared to the beginning of the year. On the other hand, sectors with rising PER include chemicals, non-ferrous metals, steel, construction, hotel leisure, essential consumer goods, and insurance. The PER of defensive sectors or those with significant potential for business improvement has increased.
Accordingly, there is a forecast that the sharp decline trend of growth stocks has entered a stabilization phase. The sluggishness of growth stocks intensified along with rising interest rates, but although the current interest rate rising trend remains valid, the possibility of increased interest rate volatility that burdens the financial market is considered low. The gap between expected inflation and the 10-year Treasury yield, which widened after COVID-19, is now almost resolved. US expected inflation is not rising above the 3% range. Moreover, downward revisions of earnings estimates for US and Korean companies have recently stopped. Researcher Heo predicted, "Corporate earnings estimates in the domestic KOSPI market are unlikely to worsen further from the current level."
However, even when turning to growth stocks, a selective investment approach is a common voice in the securities industry. Moon Nam-jung, Senior Research Fellow at Daishin Securities, advised, "As we enter the post-COVID-19 era, sorting within growth stocks is underway, so it is necessary to select and invest in companies with clear growth potential."
The sorting is already underway. According to financial information provider FnGuide, among 82 consensus-underperforming stocks that posted first-quarter earnings below market expectations, 44 are classified as growth stocks. These are stocks in internet, gaming, entertainment, and bio sectors with a price-to-earnings ratio (PER) above 10. Moreover, more than half of these 44 stocks, 26 in total, not only underperformed market expectations but also recorded an 'earnings shock' with earnings declining compared to the first quarter of last year.
Kim Hak-gyun, Head of Research Center at Shin Young Securities, emphasized, "Because there are many earnings shock growth stocks, investment should be made in growth stocks supported by earnings rather than those with high stock prices relative to corporate value." Lee Kyung-soo, Head of Research Center at Meritz Securities, also said, "The end of the growth stock rally means the end of a structural bull market, which implies entering a structural bear market," adding, "There are no signs of the peak of the growth stock cycle ending yet, but it is important to distinguish between Old Tech and New Tech."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
