20170913-三星证券-Fed’s_quantitative_tightening_To_trigger_shift_in_investment_style_18页_1mb

Samsung Strategy Weekly Summary

Core Content

This document provides an analysis of the impact of the Federal Reserve's quantitative tightening (QT) on global and Korean stock markets, focusing on investment style shifts, sector performance, and specific stock recommendations.

Main Points

Fed's Quantitative Tightening

• The US Federal Reserve is expected to begin quantitative tightening at the September FOMC meeting.
• The process will likely put upward pressure on long-term yields, although the pace is expected to be gradual.
• The Fed's dot plot suggests a total of 75bps rate hikes in 2018 and 2019, with the key rate reaching 2.0–2.25% by the end of 2018 and 2.5–3.0% by the end of 2019.
• Tightening is unlikely to derail ongoing market uptrends, but it may trigger a shift in investment style preferences due to widening long-short spreads.

Investment Style Shift

• Historically, large caps and value stocks have outperformed small caps and growth stocks during periods of widening long-short spreads in the US.
• In the Korean market, the classification of value and growth stocks is unclear, but large/small cap performance is more closely tied to US yield movements.
• The shift in investment style is expected to impact the Korean market, with large caps being preferred over small caps and value stocks over growth stocks.

Market and Sector Views

• Despite geopolitical risks on the Korean peninsula, the Kospi Thermometer indicates a neutral to bullish outlook.
• The banking sector has moved from expensive to overvalued, while the healthcare sector has moved from overvalued to expensive on a weekly basis.
• Steel, non-ferrous metals, semiconductors, and IT hardware are still preferred by the VEM model.

Sector Performance

• The sector dashboard highlights the performance of various sectors based on total returns, valuation metrics, and EPS growth.
• The Energy sector shows a positive trend with strong performance in the past month and 3 months.
• The Materials sector, particularly Lotte Chemical and LG Chem, shows strong forward P/E and P/B ratios.
• The Industrials sector, including LS Industrial Systems and LIG Nex1, has shown positive performance and valuation improvements.
• The Consumer Discretionary sector, including Hanon Systems and Lotte Himart, is also showing positive trends and valuation potential.

Key Information

Market Valuation

• Kospi: P/E 9.0, P/B 1.0, ROE 10.7
• Kosdaq: P/E 14.5, P/B 2.1, ROE 14.3

EPS Forecast Change

• Kospi: 1M 1.8%, 3M 6.3%, 6M 17.4%
• Kosdaq: 1M 2.0%, 3M 6.7%, 6M 12.4%

Sector VEM Model Preferences

• Preferred Sectors: Steel, non-ferrous metals, semiconductors, IT hardware

Stock Recommendations

Samsung Electronics (005930)

• Rating: BUY
• Reason: Memory semiconductor players are trading at fair value due to technological innovation.
• Target Price: KRW2,800,000

Hyundai Heavy Industries Group

• Rating: BUY
• Reason: The companies are pursuing acquisitions and investments through rights offerings, despite market concerns.
• Target Price: Not specified

Seah Steel (003030)

• Rating: BUY
• Reason: The domestic steel pipe business is expected to improve, and the firm has strong fundamentals.
• Target Price: KRW130,000

Celltrion Healthcare (091990)

• Rating: BUY
• Reason: Expected to enjoy vigorous growth through 2019 due to its three blockbuster biosimilars.
• Target Price: KRW60,000

Appendix

Global Stock Market Performances During Fed Rate-Hike Periods

• Data from various periods (Feb 1994, Jun 1999, Jun 2004, and median) show varying returns across different markets.

Domestic Stock Market Performances During Fed Rate-Hike Periods

• Performance data for various sectors in Korea, including Energy, Materials, Industrials, and Consumer Discretionary, are analyzed in relation to the Fed's rate hikes.

Summary

The document outlines the anticipated impact of the Fed's quantitative tightening on global and Korean stock markets, emphasizing the potential for a shift in investment styles and the performance of key sectors. It recommends expanding exposure to equities and highlights specific stocks with BUY ratings, based on their fundamentals and expected performance. The analysis is supported by valuation metrics, EPS forecasts, and historical data.