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Samsung Market Strategy Summary

Core Content

This document outlines Samsung's market strategy for 2016, with a focus on the Korean and global stock markets. It discusses investment style preferences, sector fundamentals, valuations, EPS forecast changes, and fund flows. The analysis is led by Seung Min You, Chief Strategist, and includes insights from Hyein Ok, Analyst, and Dong Yeol Moon, Research Associate.

Main Points

Investment Style Uncertainty

• The investment style in the US stock market is correlated with yield spreads. When the yield curve steepens, small caps and growth stocks outperform large caps and value stocks, respectively.
• In contrast, there is no clear correlation between Korean yield spreads and investment style preferences. The Korean stock market is more sensitive to US yield spreads.
• The relative performance of large caps and small caps in Korea is influenced by the US 10-year/5-year Treasury spread.
• The preference for growth stocks and small caps has weakened from last year's levels, and style preferences are unlikely to become clearer until US inflation and interest rate expectations become more defined.

Korean Market Analysis

• Markets in Korea and globally drifted sideways last week, with little change in valuation multiples.
• The auto, utilities, energy, construction, securities, banking, insurance, and telecommunication sectors showed undemanding P/B multiples compared to ROE, while software, consumer staples, and healthcare sectors had slightly higher valuations.
• The energy, software, insurance, shipbuilding, construction, banking, and auto sectors showed strong earnings momentum over the past three months.
• The software, insurance, banking, and auto sectors are seen as having potential for rebound due to below-average share-price performances.

Top Picks for Korean Markets

• The following companies are highlighted as top picks for the Korean market (excluding the financial sector):
  • Energy: SK Innovation
  • Materials: Lotte Chemical
  • Industrials: Hyundai Development Co, Hyundai Glovis
  • Consumer Discretionary: GS Home Shopping
  • Financials: KB Financial Group, Samsung Fire & Marine
  • IT: SK Materials, CJ O Shopping, Soulbrain

Sector Fundamentals

• MSCI Korea Sector Dashboard provides insights into total returns, forward P/E, forward P/B, forward ROE, and EPS growth.
• Energy sector has the highest total return and ROE, with strong EPS growth.
• Software sector has the highest forward P/E, while the utilities sector has the lowest total return and P/B.
• The auto and construction sectors show strong performance in terms of P/B and EPS growth.

Sector Valuations and Momentum

• The MSCI Korea sectors show varying valuations and momentum. The software, insurance, banking, and auto sectors are seen as having potential for rebound.
• The P/B Z-scores indicate that the software and consumer staples sectors are overvalued compared to the market average.

EPS Forecast Changes

• The top 10 stocks with the highest EPS growth estimates over the past one and three months include Samsung SDI, SK Materials, CJ O Shopping, and others.
• The bottom 10 stocks show negative EPS growth estimates, including Samsung Electronics, LG Uplus, and others.

Key Information

Market Valuations

• MSCI Korea forward P/E and P/B are shown in the document, with the IT sector having the highest forward P/E and the utilities sector having the lowest forward P/B.
• Kospi and Kosdaq forward P/E and P/B are also presented, indicating the relative valuations of large-cap and small-cap stocks in the Korean market.

Fund Flows

• Global fund flows show a net outflow for emerging markets and a net inflow for Asia ex Japan.
• Domestic fund flows show a net outflow for equity-type and domestic-invested funds, with a net inflow for overseas-invested funds.
• Kospi investors show mixed net fund flows, with foreign investors showing a net outflow and domestic institutions showing a net inflow.

Market Calendar

• The document includes a market calendar, though no specific details are provided in the text.

Summary and Top Picks

• The Korean stock market is more sensitive to US yield spreads than the US market.
• Investment style preferences remain unclear due to uncertainty in US inflation and interest rate expectations.
• The energy, software, insurance, and auto sectors are seen as having strong earnings momentum and potential for rebound.
• The top picks for the Korean market are based on the criteria of trading below long-term P/B averages with a higher-than-average ROE and more-stable earnings momentum.