Leading Sectors in the Stock Market for the Year of the Black Rabbit: Semiconductors, Secondary Batteries, and Chinese Consumer Goods

Semiconductors: Low Price Burden and Structural Growth Outlook
Healthcare, Defense, and Chinese Consumer Goods Expected to Show Strong Upward Momentum

Editor's Note The dominant outlook for the domestic stock market in the Year of the Rabbit 2023 is a "low start and strong finish" trend. Which leading industries and leading stocks will drive the market? Since the foreign exchange crisis, IT companies have led the stock market. During the 2008 global financial crisis, export companies such as automakers rose to prominence. What about the new year? Asia Economy gathered opinions from research center heads of 13 domestic securities firms (Mirae Asset Securities, NH Investment & Securities, Korea Investment & Securities, Hana Securities, Samsung Securities, KB Securities, Shinhan Investment Corp., Meritz Securities, Kiwoom Securities, Daishin Securities, Yuanta Securities, Hi Investment & Securities, Hyundai Motor Securities).

[Asia Economy Reporters Jeongsoo Lim, Yoonju Hwang, Sunhee Son] Research center heads forecast that semiconductors, secondary batteries, and renewable energy will be the core industries leading the stock market this year. They also advised paying attention to healthcare (including CMO), defense industry (defense), Chinese consumer goods, construction machinery, convenience stores, and wire & power equipment sectors.

Among the research center heads of 13 major domestic securities firms, 11 identified the semiconductor sector as the representative industry that will lead the stock market this year. As digitalization advances across almost all industries, semiconductor demand is structurally bound to increase. Additionally, due to last year's interest rate hikes and recession concerns, semiconductor stock prices have fallen significantly, highlighting their undervaluation appeal.

Oh Tae-dong, head of NH Investment & Securities Research Center, said, "The semiconductor industry will hit its bottom in the second quarter this year and improve from the third quarter," adding, "Considering that stock prices lead by about six months, the beginning of the year will be a good buying opportunity." Jeong Yeon-woo, head of Daishin Securities Research Center, predicted, "As the semiconductor industry improves in the second half, the earnings of related companies (such as Samsung Electronics) will start to improve," and "Considering the stock market's tendency to reflect changes in advance, stock prices will bottom out and rise from the first half."

Secondary batteries and renewable energy were also cited as industries with a high possibility of rebounding throughout the year. Following the passage of the U.S. Inflation Reduction Act (IRA) and the European Union (EU) Raw Materials Act, the U.S. and EU countries' clear trend of decoupling from China is expected to bring spillover benefits to Korean companies. Hwang Seung-taek, head of Hana Securities Research Center, said, "The North American electric vehicle market will grow in earnest this year," and "Due to the decoupling effect of major countries from China, Korean secondary battery and renewable energy companies will be incorporated into supply chains replacing Chinese companies, benefiting from this."

Healthcare and Defense Benefit from Market Expansion... Chinese Reopening-Related Sectors Also Expected to Perform Well

Healthcare, defense, and Chinese reopening-related sectors were also evaluated as having significant stock price growth potential. Center head Oh Tae-dong analyzed, "Korean biotech companies have seen their valuation burdens significantly reduced due to the discount rate pressure from U.S. interest rate hikes," adding, "It will be a good time to invest when the interest rate hikes end." He also predicted benefits for relatively undervalued Korean biotech companies as "the U.S. biosimilar market will expand starting this year." Yoon Chang-yong, head of Shinhan Investment Corp. Research Center, evaluated, "With increased demand for pharmaceuticals, healthcare sector companies' sales and profitability will improve," and "The exchange rate is also working favorably for domestic companies."

Center head Jeong Yeon-woo said, "With deglobalization and rising geopolitical risks, the importance of self-reliant defense is increasing," and recommended paying attention to defense companies as "defense spending expansion centered on Europe and the Middle East continues, sustaining order intake rallies for domestic defense companies." Ko Tae-bong, head of Hi Investment & Securities Research Center, added, "The new cold war, military expansions by various countries, and nationalist industrial policies are not issues that will disappear in the short term."

Kim Ji-san, head of Kiwoom Securities Research Center, forecasted, "If China's reopening accelerates within the year, Chinese consumer goods sectors such as cosmetics, travel, entertainment, and food & beverage will also benefit."

Construction Machinery, Wire & Power Equipment Benefit from Expanded Infrastructure Investment in the U.S. and Middle East

Supported by the expanding infrastructure investment atmosphere in the U.S. and Middle East, construction machinery and wire & power equipment companies' earnings are expected to improve, and their stock prices to rise. Yoon Seok-mo, head of Samsung Securities Research Center, said, "If the U.S. expands eco-friendly infrastructure investment, attention should be paid to leading Korean companies in global wire & power equipment," adding, "With investment expansion in Middle Eastern countries including Saudi Arabia, Korean construction and construction machinery stocks are likely to outperform the market average return." Seo Cheol-soo, head of Mirae Asset Securities Research Center, added, "This year, sectors benefiting from global supply chain restructuring and government policies will stand out in the domestic stock market," and "Secondary batteries, solar power, defense, and wire & power equipment companies belong to such sectors."