Santa Not Coming Doesn't Mean a Market Crash... Focus on Earnings and Growth Stocks

[Image source=Yonhap News]

[Asia Economy Reporter Lee Myunghwan] Recently, as the domestic stock market has shown a continuous downward trend, the year-end 'Santa Rally' expectations have disappeared, but securities firms advise that there will be no short-term sharp declines and that attention should be paid to earnings and growth stocks.

According to the Korea Exchange on the 9th, the KOSPI closed at 2,371.08 on the 8th, down 0.49% (11.73 points) from the previous trading day, marking the lowest level in the past month. It showed a decline for five consecutive trading days.

Foreign investors, who led the index rise last month by net buying nearly 4 trillion won, have been net selling stocks every day in the securities market for the past five trading days, putting downward pressure on the stock market. Expectations for the Santa Rally have also disappeared. The Santa Rally refers to the phenomenon where stock prices show strength due to increased domestic demand around the year-end and New Year holidays, driven by corporate bonus payments.

There is a diagnosis that a market rebound will be difficult for the time being. Shin Seungjin, a researcher at Samsung Securities, predicted, "Since there are no special macro issues until the U.S. Consumer Price Index (CPI) announcement on the 13th and the Federal Open Market Committee (FOMC) meeting on the 15th, sector rotation is expected to continue for the time being."

As an investment strategy, it was advised to focus on growth stocks. This is because the stock market is unlikely to fall sharply. Heo Jaehwan, a researcher at Eugene Investment & Securities, said, "Considering the possibility of an economic recession this year, the real interest rate, which has been an obstacle to stock market recovery, is likely to fall," adding, "While the momentum of stock price increases is slowing, growth stocks, which had relatively minor rebounds, will recover their losses."

Companies with good earnings were also suggested as stocks to watch. Lee Jaeman, a researcher at Hana Securities, said, "At the point when the year-end market transitions to an earnings-driven market, there is a strong rise from the year-end low to January," advising, "Although the earnings momentum factor has shown poor performance since November this year, it is gradually time to bet on earnings stocks." Lee Jinwoo, a researcher at Meritz Securities, also predicted, "Due to unfavorable funding conditions, companies cannot avoid rising costs and weakened profitability," and "Until the end of the year, there will be a concentration on industries and companies with verified numbers."