"If Impeachment Crisis Prolongs, Respond with Sectors Having Strong Profit Momentum"

On the 11th, Kiwoom Securities advised that in preparation for a prolonged impeachment political crisis, investors should focus on stocks with quality and earnings momentum that do not carry a high valuation burden.

Choi Jaewon, a researcher at Kiwoom Securities, stated in a report released that day, "Since the emergency martial law situation on December 4th, domestic political uncertainty has intensified, leading to increased volatility in the domestic stock market," adding, "The growing likelihood of a prolonged impeachment standoff is a key reason why market volatility is expected to continue for some time."

Generally, during periods of heightened market volatility, defensive characteristics such as low volatility or high dividend styles tend to experience relatively limited declines. However, Choi explained that during this recent sharp downturn, defensive styles performed relatively worse.

Looking at cumulative returns by style from the 4th to the 10th, domestic consumption stocks (-2.7%) and large-cap stocks (-2.9%) showed limited declines, whereas high dividend (-8.3%) and value (-6.9%) styles recorded the poorest performance.

He noted, "Considering the defensive nature and the seasonality of year-end dividend stocks, the recent weak performance of dividend stocks is unusual," and added, "Due to changes in the dividend record date, dividend demand, which was previously concentrated at year-end, has spread into early next year, weakening the seasonality of dividend stocks compared to the past."

However, compared to average past trends, dividend stocks that had accumulated solid performance since the second quarter throughout this year appeared to attract profit-taking demand rather than defensive demand during the recent period of increased market volatility, according to Choi.

He also mentioned that although a rebound occurred following bargain buying after five trading days, until concerns related to the impeachment standoff are resolved, it is highly likely that profit-taking sales and sector rotation aimed at securing downside stability will continue.

Accordingly, until political uncertainty is resolved after the impeachment crisis, attention should be paid to stocks that are undervalued relative to the past and have favorable earnings momentum.

Researcher Choi said, "In the volatile phase that will unfold until the timeline of the impeachment crisis becomes clear and uncertainty is resolved, the group of stocks that can maintain relative superiority are those that are undervalued compared to the past while having strong earnings momentum and profitability," explaining, "Interest tends to focus on sectors with earnings improvement momentum when the overall market earnings momentum is weak, and during periods when earnings momentum is poor and market volatility increases, quality style stocks often show an advantage."