[Weekly Market Outlook] Earnings Season Stock Differentiation... Focus on First Interest Rate Hike of the New Year

Negative Factors in Last Year's Q4 Earnings Announcement
Interest in Whether the First Monetary Policy Committee Meeting of the New Year on the 13th Will Raise Interest Rates
Favorable for Earnings and Policy Stocks... Differentiation by Stock

[Asia Economy Reporter Lee Seon-ae] The earnings season has officially begun, starting with the 'earnings shock' of Samsung Electronics, the leading domestic company, in the fourth quarter of last year. Typically, fourth-quarter earnings tend to fall short of market expectations, increasing the likelihood of earnings shocks. Accordingly, a differentiated market trend by stock is expected to become more pronounced.

Additionally, there is significant market interest in the Bank of Korea's first Monetary Policy Committee meeting of the new year. The Monetary Policy Committee is expected to hold a meeting on the 13th and is likely to raise the base interest rate by 0.25 percentage points to 3.50% per annum. Shinhan Investment Corp. forecasted, "The Monetary Policy Committee is expected to raise the base rate by 0.25 percentage points this month," adding, "A tightening caution is likely to affect the financial market before the committee meeting."

Bank of Korea Governor Lee Chang-yong is scheduled to decide on whether to raise the base interest rate at the Monetary Policy Committee meeting on the 13th. The photo shows the Monetary Policy Committee plenary session in November last year. Photo by Yonhap News Agency

Attention will also focus on U.S. consumer prices and remarks from Federal Reserve (Fed) officials, the U.S. central bank. The Fed is maintaining a tightening stance. KB Securities expects the final U.S. base interest rate to be 5.00%, but also notes that a 0.50 percentage point hike in February should remain a possibility. KB Securities researcher Lim Jae-kyun explained, "The final U.S. base rate could reach 5.25%, and if the Bank of Korea concludes rate hikes at 3.50%, the Korea-U.S. base rate gap will widen to 1.75 percentage points," adding, "If this gap widens more than the market expects, the recently stabilized exchange rate could become unstable again."

As the fourth-quarter earnings reports begin to be released in earnest, downward pressure on the KOSPI is expected to increase. NH Investment & Securities researcher Kim Young-hwan said, "The fourth-quarter earnings season kicked off with Samsung Electronics' preliminary earnings announcement on the 6th, but the KOSPI earnings consensus for the fourth quarter of last year has been declining over the past two weeks," adding, "Generally, the fourth quarter often sees earnings fall short of forecasts due to one-off costs, limiting market impact, but the problem this time is the heightened concerns about an economic recession." He continued, "Investors should explore whether each company can navigate the recession period well in this earnings season." According to NH Investment & Securities, the estimated operating profit for the KOSPI in the fourth quarter of last year has decreased by 5.1%, from 41.9 trillion won to 39.7 trillion won over the past two weeks.

The selling pressure from financial investment sectors, which recently caused market supply-demand confusion, is expected to gradually ease. Samsung Securities researcher Kim Yong-gu said, "The selling pressure from financial investments, which make up the majority of institutional supply-demand in the domestic stock market, shows a clear seasonality that concludes with the January options expiration date," adding, "The market may become less sensitive to pre-reflected negative factors and shift its response strategy from selling to holding, and from observing to buying."

As an investment strategy, responding with earnings stocks and policy stocks is considered effective for the time being. Researcher Kim Young-hwan analyzed, "January is expected to see a differentiated market trend by individual stocks due to earnings announcements, year-end and New Year government industrial policy announcements, and growth strategies presented in major groups' New Year's addresses," adding, "Industries closely related to policy themes such as companies with stable sales growth and continuous cost reductions, companies with large investment proportions and healthy cash holdings, and sectors like media/content, construction/defense, and overseas orders for nuclear power plants are effective."