The author is an analyst for NH Investment & Securities. He can be reached at bk@nhqv.com -- Ed.
The two terms that defined last year’s stock market were ‘new cold war’ and ‘supply chain reshaping’. In 2024, decoupling between DMs and EMs is to become a new market-defining feature. Today, the US’s bullish economy and strong private consumption mark a clear contrast with the slumping economies in DMs. Until the market becomes more confident towards 1Q24 earnings, yield-related hurdles (receding early rate cut expectations, QT) are to remain in play. Nonetheless, EMs with close ties to the US could share the fruits of the US economic boom. Looking towards 2Q24, we recommend a dip buying strategy for 1Q24 whenever the stock market approaches the bottom of its narrow range.
I. Investment strategy: Between trailing P/E (calm) and forward P/E (passion)
- We expect the Kospi to move between 2,300p and 2,600p in 1Q24. We recommend accumulating shares gradually on corrections at the bottom of the range, expecting a rally in 2Q24
- In the stock market, decoupling is unfolding between DMs and EMs at the beginning of 2024. Korea’s decoupling is attributed to China, semicon earnings, and PF concerns
- Economic shock forecasts for China are triggering stimulus expectations, though structural problems still linger. The semicon industry’s 1Q24 earnings preview should raise earnings visibility. While the real estate and construction industries are at risk of a long-term slowdown, risks are being managed by the government’s support measures and constructors’ active response
- Three yield-related hurdles are in play: receding early rate cut expectations, contracting liquidity, and greater treasury bond issuance
- Nonetheless, we recommend a dip buying approach upon market corrections. We foresee that disinflation will settle in 2024. Though not in March, rate normalization should start in 2024 in line with falling inflation
- Despite likely decoupling between DMs and EMs, we expect EMs with close ties to the US economy to share the fruits of US technology advancement
II. Quant/portfolio: Concentrate on selected plays
[US earnings and style]
- US companies have been delivering earnings surprises via moves to boost efficiency. IT firms are focusing their labor resources and investments toward areas with promising growth potential
- With uncertainties remain high toward future business conditions, cuts will likely be made to earnings expectations each earnings season for now
- P/Es have been differentiating depending upon the level of impact of AI on a given player’s earnings. We believe that concentration towards M7 stocks will ease, starting from 1Q24 earnings season
[Korean earnings and style]
- We expect business conditions to improve from as early as 2H24. Sharp downward adjustments have yet to made to 2024 earnings estimates
- Earnings momentum is to stand out during 1Q24 earnings season, led by turnaround sectors
- We advise reducing tracking errors for large caps and taking a selective approach toward small/mid caps
[Investment ideas]
- With exports likely to be more brisk than domestic consumption in 2024, we recommend export stock-oriented portfolios
- ① In 2024, Korea’s exports are expected to rise mainly toward the US market, with the key export category being AI-related semiconductors. The renewable energy industry is also to benefit from favorable policies in both the US and Europe
- ② Amid dampened domestic consumption, a value-for-price consumption trend should deserve attention. The cosmetics (OEM), apparel (SPA), parcel delivery, and air transportation (LCC) sectors are to be the key beneficiaries of the new consumption trend
→ February top picks: SEC, SK Hynix, CS Wind, CJ Logistics, Cosmax, Hansae, Jin Air, NAVER, Hanwha Aerospace, and Yuhan