[Practical Finance] Domestic Stock Sectors That Can Overcome Trump Tariff Challenges

"KOSPI PBR Enters 0.8 Times... A Historic Buying Opportunity"
Short-Term Rebound in Oversold Stocks, Focus on Dollar Weakness Beneficiaries for the Mid-Term

Uncertainty in the domestic stock market has increased due to U.S. President Donald Trump's inconsistent 'tariff policy.' Earlier, the Trump administration announced plans to impose reciprocal tariffs by country but shifted direction to a '90-day delay' within a week. However, tensions escalated with China, which responded in kind, and concerns over a global 'tariff war' persist following the U.S. imposing a 145% tariff on China and China enforcing a 125% retaliatory tariff. Last week, the KOSPI fell below the 2400 mark, with the 12-month forward price-to-book ratio (PBR) dropping below 0.8 times.

Nonetheless, the securities industry largely diagnosed that "it is a better time to buy than to sell." It is advised that the current low valuation of the Korean stock market (stock price relative to corporate value) presents a 'buying opportunity' for long-term investors. Seung-Young Park, a researcher at Hanwha Investment & Securities, said, "A KOSPI PBR of 0.8 corresponds to around 2350 points and is a rare phenomenon, occurring only 130 days out of 5,986 trading days since 2001, which is about 2.2%. Afterward, the average fluctuation rate over the next 20 trading days has been 6.8%."

Historic Market Fear Index... Be Cautious with Selling and Focus on Oversold Stocks

Experts advise approaching sectors with high price declines compared to recent peaks.

Jaeman Lee, a researcher at Hana Securities, said, "A strategy focusing on sectors with a higher decline rate in price-to-earnings ratio (PER) than in stock price is necessary. Stocks that fell sharply during Black Monday in 1987, the 2008 global financial crisis, and the 2020 COVID-19 pandemic showed strong rebounds within one month. In the KOSPI, machinery, chemicals, and semiconductors are sectors expected to rebound in the short term due to being oversold."

Lee added, "From a mid-term perspective, an investment strategy preparing for a weak dollar and falling U.S. interest rates is needed. The dollar weakness (reducing trade deficits) and government bond interest rate declines (reducing government interest expenses) desired by President Trump are likely to be future policy directions. Since 2007, on a quarterly basis, steel and transportation sectors have stood out in the KOSPI during periods of dollar weakness and falling U.S. interest rates."

Daun Jung, a researcher at LS Securities, said, "The uncertainty originating from President Trump's tariff policy is passing its peak," and suggested "oversold sectors such as automobiles and semiconductors, transportation benefiting from exchange rates, and construction expecting policy benefits as sectors of interest."

Focus on Domestic Consumer Goods, Shipbuilding, and Bio... Automobiles and Semiconductors Avoid the Worst

Sectors clearly benefiting from U.S. policies such as shipbuilding, defense, and bio are also attracting attention. Seungjin Shin, a researcher at Samsung Securities, said, "The shipbuilding and defense sectors have shown steady stock performance supported by strong earnings and policy momentum," adding, "President Trump repeatedly confirmed his commitment to rebuilding the U.S. shipbuilding industry during cabinet meetings. To counter China's naval power, orders from allied countries are expected to increase."

He also analyzed, "Recently, growth-type sectors such as bio, healthcare, and robotics have been strong in the KOSDAQ. They have abundant earnings momentum due to export growth and diversified export destinations, making them free from tariff uncertainties."

Improvement in domestic service consumption is also anticipated. Jinhyuk Kang, a researcher at Shinhan Investment Corp., emphasized, "With the resolution of political uncertainties and the early presidential election phase, expectations for liquidity expansion are clear. The Bank of Korea's policy of lowering the base interest rate and supplementary budgets to stimulate domestic demand are positive for domestic consumer goods sectors." Juwon Lee, a researcher at Daishin Securities, said, "Due to improved consumer sentiment and coordinated monetary and fiscal policies, domestic demand is likely to be better than expected. However, the unusually high exchange rate may partially dampen travel demand, suggesting that domestic service consumption is more likely to improve than overseas consumption."

Researcher Seungjin Shin explained, "With increased market volatility, portfolio management has become more important. It is necessary to maintain an appropriate cash ratio and avoid excessive leverage investments. Even in difficult markets, investing in leading stocks that can be winners during earnings seasons can improve performance."

Meanwhile, regarding technology stocks such as semiconductors, Jongwook Lee of Samsung Securities said, "To achieve the ultimate goal of countering China and attracting U.S. investment, differentiated options will be applied by item, and the U.S. government's intention not to tolerate a decline in IT demand has been confirmed. The reason the U.S. is preparing item-specific taxation policies under tariff exemption rather than imposing tariffs item by item is to send a message that it will not tolerate a decline in domestic IT demand."

Automobile-related stocks are showing expectations for a turnaround as President Trump hinted at tariff exemptions on the 14th (local time). During a meeting with Nayib Bukele, President of El Salvador, in the White House Oval Office, Trump said, "(Automobile companies) are shifting production to make parts here that were previously produced in Canada and Mexico," adding, "But they need a little more time." Previously, the Trump administration imposed a 25% tariff on automobiles starting from the 3rd.

Taeyun Sun, a researcher at KB Securities, evaluated, "The U.S.-China tariff chicken game and recession concerns will remain uncertainty factors for a while, but as developments are expected to proceed with 'tariff imposition followed by delay, withdrawal, and individual adjustments,' the fear is passing its peak."

He added, "Rather than approaching pessimistically, a strategy to weigh buying opportunities seems necessary. The power struggle between semiconductor and non-semiconductor sectors (defense, aerospace, shipbuilding machinery, artificial intelligence, software, etc.) is also a matter of interest."