Concerns Over Economic Slowdown Ahead of FOMC... Focus on Stocks Improving in Practice

Photo by Getty Images Bank

[Asia Economy Reporter Hwang Junho] As a significant base interest rate hike is expected once again in the United States on the 27th (local time), concerns over economic slowdown have intensified. The securities industry advised focusing on stocks expected to show earnings improvement during the rate hike period.

On the 26th, KB Securities released a 'Quant' report analyzing the need to pay attention to companies showing earnings improvement amid a gloomy economic outlook. Researcher Kim Mingyu of KB Securities stated, "There are stocks delivering strong earnings in the Q2 earnings season this year despite the economic slowdown outlook," adding, "Even a limited 'earnings surprise' is enough to support the short-term bear market rally in the suppressed market."

KB Securities focused on stocks that showed good results in the Q1 earnings season and whose forecasts are being revised upward this quarter. They identified LG Innotek, Samsung SDI, L&F, Orion, Lotte Chilsung, SPC Samlip, Studio Dragon, and Cheil Worldwide as stocks expected to maintain operating profit margins in Q2 this year while also increasing profits next year.

DB Financial Investment also concentrated on similar stocks but anticipated that the number of companies delivering earnings would gradually decrease toward the second half of the year.

Researcher Seol Taehyun of KB Financial Investment, analyzing domestic listed companies, explained, "Due to the excessively high expectations set last year, the number of companies recording earnings surprises is expected to be the lowest in Q4 this year," adding, "The average stock returns of companies with earnings surprises were higher than those with earnings shocks, and the probability that the return difference is positive reaches 72%."

Within this analysis, sectors with a high likelihood of earnings surprises include healthcare, trading/capital goods, retail (distribution), and cosmetics/apparel/toys. Specifically, among stocks, 20 companies including Medytox, S-Oil, and KEPCO Engineering & Construction are expected to expand earnings.

Researcher Seol added, "There are seven stocks, including S-Oil, LG Innotek, Shinsegae International, and Samsung SDI, that are expected to show earnings surprises in Q2 this year and have upwardly revised earnings forecasts for Q3."