Kospi Likely to Display Downward Rigidity
The author is a strategist of NH Investment & Securities. He can be reached at lawrence.kim@nhqv.com. -- Ed.
Having wanted US people to be grasshoppers by granting extra federal unemployment benefits, the US government now hopes that they will become ants as it is soon set to put an end to the benefits. But, concerns are mounting over both the spread of the Covid-19 Delta variant and over whether people will actually return to work. The government is keen to achieve full employment. To this end, we believe that it needs to provide continued support for vaccination, quality jobs, welfare, and education. Financial market stability is crucial as well. Accordingly, the Fed has kept priming the pump while preparing for tapering. While policy momentum should stagnate for now, with Congress set to recess soon, the Kospi is likely to display downward rigidity in response to the Fed’s accommodative stance.
Investment strategy: Performance to vary by stock
- There have only been two times in its history when the Kospi rallied for eight months in a row. The first was in 1977, backed by Middle East construction boom, and the second is unfolding now
- For further rallies, greater growth drivers are to be crucial. But, share-price growth momentum is to lose steam for now, considering changes in US consumption patterns and consumer sentiment, and US Congress recess
- At the same time, however, the index is likely to display strong downward rigidity. While beginning discussions over tapering, the Fed has kept priming the pump to stabilize the financial market, in light of both the spread of the Covid-19 Delta variant and prolonging of bottlenecks in the global supply chain
- The US administration and Fed are forecast to keep loosening monetary and fiscal policies until their doubts subside over if US citizens will return to work after the end of extra federal unemployment benefits
- The Kospi is likely to display a steady and moderate rally, with performance to widely vary by stock based on issues and themes
Investment ideas: Core-satellite strategy recommended for August
August portfolio: ① Environment > ② Policy > ③ Coronavirus here to stay > ④ Re-opening
- August portfolio recommendation: As global economic recovery from Covid-19 has progressed considerably, doubts have risen towards the sustainability of cyclicals’ earnings momentum (which has driven the overall earnings improvement thus far). The stock market is no longer reacting to the earnings results for a respective quarter. We recommend a core-satellite strategy for August. In detail, investors should focus on large-cap export stocks (eg, auto) that are closely linked to global economic recovery. However, given growing concerns that cyclicals’ earnings have peaked out, we believe that a satellite strategy that targets short-term market themes will also be highlighted in August
- ① Environment: Stricter environmental regulations to keep shipping rates high
- ② Policy: Nuclear power policy, F&B product price hikes, and Korea New Deal 2.0
- ③ Coronavirus here to stay: Regular vaccines necessary
- ④ Re-opening: Rental car plays’ earnings to improve on rising secondhand car price and rising rental fees
→ Preferred plays for July: SEC, Worldex, HMC, Pan Ocean, NAVER, Kakao Games, Coocon, ESTsoft, KEPCO, CJCJ, Nongshim, Samsung Biologics, SK Rent-a-car