'Lowest in 6 Months'... Growth Stocks Resurface Amid Falling International Oil Prices

[Asia Economy Reporter Kwon Jae-hee] Since the beginning of this year, international oil prices, which had been soaring due to the Russia-Ukraine conflict, have fallen to their lowest level in over six months, bringing growth stocks back into the spotlight. Typically, sectors such as IT and biotech have shown weakness when oil prices rise, but with oil prices falling again, these sectors are gaining attention. However, given that uncertainties still remain, there is advice that investments in growth stocks should be approached as a short-term strategy.

On the 16th (local time), according to the New York Mercantile Exchange (NYMEX), the September futures price of West Texas Intermediate (WTI) crude oil was recorded at $86.53 per barrel. This represents a 2.91% decline from the previous trading day and about a 35% drop from the peak. It is the first time in six months since February 10th (when it was $89.88 per barrel) that international oil prices have fallen to the $80 range per barrel.

The decline in international oil prices is evident from both demand and supply perspectives. The decrease in oil demand due to the global economic recession and the expected return of Iranian oil to the market following hopes for a resolution of the Iran nuclear deal are anticipated to increase oil supply. As a result, international oil prices have reverted to pre-Russia-Ukraine conflict levels.

With the fall in international oil prices, 'growth stocks' are gaining attention again. Oil prices have traditionally been a key factor determining sector performance in the stock market. During the first half of this year, when oil prices steadily rose, sectors with the highest relative returns compared to the KOSPI were shipbuilding, trading companies, energy, and non-ferrous metals. However, in the second half, sectors that had recorded high relative returns in the first half have declined, while software, media, display, IT home appliances, and semiconductors have outperformed the benchmark since July.

Since 2000, there have been six instances when oil prices peaked: March 2003, April 2005, July 2008, November 2011, December 2016, and June 2018. During these periods, sectors that outperformed the KOSPI returns were healthcare (8.6%), industrials (3.9%), communication (3.3%), IT (3.0%), and consumer staples (0.2%). Conversely, sectors with lower returns included materials (-2.9%), utilities (-2.8%), energy (-2.8%), financials (-1.2%), and consumer discretionary (-0.1%).

Researcher Roh Dong-gil of Shinhan Financial Investment stated, "Growth stocks tend to show better returns in an environment where market interest rates stabilize because IT returns increase as raw material prices fall." He advised, "Considering this, it is necessary to focus on growth stocks and IT sectors over the next two to three months."

However, he also added that since uncertainties still exist, investment strategies for growth stocks are only valid from a short-term perspective. This is based on the premise that demand-side factors causing the oil price decline do not worsen further and that geopolitical risks do not reoccur.

Researcher Roh added, "Among growth stocks, portfolios should focus on sectors that have been excessively oversold, but concerns about recession could increase if geopolitical risks reemerge, so the combination of growth stocks and IT should be approached with a short-term strategy."