20170913-三星证券-Fed_s_quantitative_tightening__To_trigger_shift_in_investment_style_17页_1mb

Samsung Strategy Weekly Summary

Core Content

This document provides an analysis of the Korean stock market in light of the U.S. Federal Reserve's upcoming quantitative tightening (QT) and its potential impact on investment styles and sector performance. It includes market valuation metrics, EPS forecast changes, and sector-specific insights based on the VEM model and technical indicators.

Main Points

• Fed's Quantitative Tightening (QT): The U.S. Fed is expected to begin QT in September 2017, which could lead to a gradual increase in long-term yields. This is anticipated to cause a shift in investment style preferences, favoring large caps and value stocks in the Korean market.

• Market Valuation (12m Fwd):

  • 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 (12m Fwd):

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

• Market and Sector Views:

  • The Kospi Thermometer, a technical model, suggests a neutral stance, indicating a potential shift from overheated to balanced conditions.
  • The banking sector has moved from expensive to overvalued, while the healthcare sector has shifted from overvalued to expensive. These changes are technical, not fundamental.
  • Sectors like steel, non-ferrous metals, semiconductors, and IT hardware are still preferred by the VEM model.
  • The document notes that investment style in the Korean market is more influenced by U.S. long-short spreads than by domestic yield curves.

• Impact of Fed Rate Hikes:

  • The Fed's benchmark rate is expected to rise gradually, with projections of 25bps in 2017, 75bps in 2018, and another 75bps in 2019, leading to a median rate of 3.0% by end-2019.
  • The Fed's tightening is expected to cause a curve steepening, which historically has favored small caps and growth stocks in the U.S. and globally.
  • However, in the Korean market, large caps and value stocks are more likely to outperform due to the influence of U.S. yield movements.

• Sector Performance:

  • The document provides a detailed dashboard of sector performance, including total returns, valuation metrics, and EPS growth.
  • Key sectors with positive outlooks include Energy, Materials, and Industrials, with specific companies like SK Innovation, Lotte Chemical, and Hyundai Mipo Dockyard highlighted.

Key Information

• Market Volatility: The report recommends expanding equity exposure despite increased market volatility, citing the technical model's shift to a neutral level.
• Investment Style Shift: As the U.S. long-short spreads widen, the Korean market is expected to see a shift from growth to value stocks, with large caps outperforming small caps.
• Sector Preferences: Steel, non-ferrous metals, semiconductors, and IT hardware remain favored by the VEM model.
• Individual Stock Analysis:
  • Samsung Electronics (005930): Maintains a BUY rating with an unchanged 12-month target price of KRW2,800,000.
  • Hyundai Heavy Industries Group: Plans to issue new shares, which may lead to share dilution, but the stock is expected to have significant upside.
  • Seah Steel (003030): Recommended as a BUY due to its strong fundamentals and potential for earnings momentum.
  • Celltrion Healthcare (091990): Recommended as a BUY with a 12-month target price of KRW60,000, driven by its blockbuster biosimilars and growth prospects.

Appendix Highlights

• Global Stock Market Performance During Fed Rate Hike Periods: Data from 1994, 1999, 2004, and median periods show varying performances across regions, with the Korean market showing mixed results.
• Domestic Stock Market Performance During Fed Rate Hike Periods: The performance of sectors like Energy, Materials, and Industrials is analyzed, with some showing positive trends and others negative, depending on the timing of the rate hikes.

Summary

The document outlines the anticipated impact of the Fed's quantitative tightening on the Korean stock market, emphasizing the likely shift in investment style towards large caps and value stocks. It provides detailed sector analyses and stock-specific recommendations, suggesting that certain sectors and companies may outperform based on their fundamentals and market positioning. The report also includes historical data and valuation metrics to support its investment strategy.