"Promising US and India Stocks in Second Half... Focus on Economic Indicators Over US Presidential Election"

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As the second half of this year ushers in a period of interest rate cuts, corporate profit growth is expected to continue, making U.S. and India stocks, which benefit from this trend, highly attractive investment options. Regarding the most anticipated event, the U.S. presidential election, it is likely to be a short-term factor, so investors are advised to pay attention to various economic indicators.

SC First Bank released its “2024 Second Half Financial Market Outlook and Investment Strategy Report” on the 2nd, which contains these insights. Based on this report, SC First Bank conducts a biannual “Wealth Care Seminar” for its top clients to share global asset management strategies.

According to the report, with the Federal Reserve’s (Fed) interest rate cuts and the approaching potential turning point of the U.S. presidential election, investors need to adapt flexibly to market changes. Stocks are expected to outperform cash and bonds, with U.S. and India equities predicted to stand out. Outside of stocks, gold and dollar-denominated investment-grade (EM USD IG) bonds are viewed as appropriate diversification tools.

SC First Bank forecasts that from the second quarter, major central banks will proactively cut interest rates to prevent recessions, supporting a continued trend of corporate profit growth. Among these, the U.S. stock market is expected to maintain relative strength compared to other major markets. Since the beginning of the year, earnings forecasts have been revised upward, and growth expectations may spread beyond the Magnificent 7 (large tech stocks such as Nvidia, Meta, Amazon, Microsoft, Google, Apple, and Tesla) as the year progresses. However, since U.S. stocks have already risen nearly 15% since the start of the year, the bank noted that a dramatic further rise is unlikely.

Regarding the U.S. presidential election as the biggest event in the second half, the bank stated, “Since 1972, the U.S. S&P 500 index has recorded positive average returns in the six months before and after elections, with volatility limited to a few weeks around the election.” While the election may be a short-term factor dominating news headlines, it is more important from a macro perspective to focus on various economic indicators.

SC First Bank maintained a ‘neutral’ investment stance on most major markets except the U.S. However, within Asian equities excluding Japan, it recommended increasing exposure to India. Similar to the U.S. market, India’s economic and corporate profit outlook remains positive, and with the general election concluded, major uncertainties have been resolved. From a high-risk, high-return strategy perspective, sector preferences by region show that energy stocks in the U.S., Europe, and China have been downgraded from ‘overweight’ to ‘neutral.’ Due to increased power demand driven by artificial intelligence (AI), the investment opinion on U.S. utilities was upgraded to neutral.

For portfolio diversification, gold and dollar-denominated investment-grade bonds were highlighted. Gold was the best-performing asset class in the first half, rising 14.4% since the start of the year. The supply-demand imbalance has driven gold’s strength. Central bank gold purchases remain robust, and with interest rate cuts and favorable bond yield trends, positive momentum for gold is expected to continue.

Among Korean stocks, positive views were maintained on leading sectors such as semiconductors and undervalued sectors like automobiles and financials with low price-to-book ratios (low PBR). The semiconductor profit cycle averages two years, and considering the current cycle bottomed in Q1 last year, the profit peak-out is likely to be confirmed after Q1 next year. With government policies related to value-up expected to materialize in Q4, stocks with strong shareholder return potential, such as automobiles and financials, are viewed positively. However, as the U.S. presidential election approaches, profit-taking to avoid uncertainty is expected to intensify. Additionally, concerns over the peak of export momentum in the second half may increase stock price volatility.