20160316-三星证券-Perspectives_Weekly_Two_points_regarding_market_upside_19页_1mb

Samsung Market Strategy Summary

Core Content

This document provides a comprehensive market strategy analysis for the Korean and global stock markets, focusing on sector fundamentals, valuations, EPS forecasts, and fund flows. It outlines the current market conditions, investor sentiment, and recommendations for strategic exposure in different sectors.

Main Points and Key Information

1. Strategy Briefing

• Kospi Rally Sustainability: The recent rally in the Kospi is expected to be short-lived, with June being a critical month. Investors should reduce exposure during this period.
• Market Outlook for 2H: Despite concerns, the outlook for the second half of the year is improving. Rate hikes by the US Fed are preferred over economic downturns.
• P/B Ratio and ROE: The P/B ratio is influenced by ROE and COE. The Kospi's P/B ratio has been in a range of 0.9x to 1.1x since 2012 due to declining ROE and COE.
• Kospi P/B Band: The P/B band has recently dropped below 0.9x, indicating a potential correction. A sustainable ROE is needed for further rally.
• Kospi Forecast: A P/B of 1x is forecasted to put the Kospi at 2,150. A higher level would require earnings turnarounds, but the benchmark is likely to trade at a partial discount.

2. Korean Stock Markets

• Sector Performance: The software sector had the strongest performance last week, rising 5.3%. Other sectors like steel, shipbuilding, and machinery ended their rallies in decline.
• EPS Revisions: All sectors except energy, chemical, shipbuilding/machinery, construction, and utilities had their 12-month-forward EPS estimates revised downward.
• Top Picks:
  • Energy: SK Innovation
  • Materials: KCC, Posco
  • Industrials: Hyundai Development Co
  • Consumer: Hankook Tire
  • Discretionary: GS Home Shopping
  • Consumer Staples: KT&G
  • IT: LG Electronics, SFA Engineering
  • Utilities: Kogas

3. Sector Fundamentals

• MSCI Korea Performance:

  • Energy: Strongest performance with 17.2% total return.
  • Chemicals: 12.4% total return.
  • Steel: 14.3% total return.
  • Industrials: 20.8% total return.
  • Construction: 7.4% total return.
  • Transportation: 20.8% total return.
  • Autos & Auto Parts: 4.0% total return.
  • Discretionary: 7.4% total return.
  • Retail: 11.7% total return.
  • Consumer Staples: 1.2% total return.
  • Healthcare: 5.3% total return.
  • IT: 10.8% total return.
  • Telecom Services: 10.7% total return.
  • Utilities: 11.1% total return.

• Valuation Metrics:

  • Forward P/E and P/B are provided for MSCI Korea and Kospi.
  • The document includes visual representations of these metrics.

4. Sector Valuations and Momentum

• P/B Z-scores and EPS Changes: The P/B Z-scores and EPS forecast changes are detailed, indicating the relative performance of sectors.
• Relative Earnings Momentum: Sectors like Energy and Industrials showed positive earnings momentum, while others faced downward revisions.

5. Stock Screening: EPS Forecast Changes

• Large Caps: Top 10 stocks include SK Innovation, KCC, Posco, Hyundai Development Co, Hankook Tire, GS Home Shopping, KT&G, LG Electronics, SFA Engineering, and Kogas.
• Mid-sized Caps: Top 10 stocks include Doosan Infracore, Samsung Engineering, Samsung Heavy Industries, Korean Air, Doosan Heavy Industries & Construction, SFA Engineering, Hyundai Securities, CJ O Shopping, KB Insurance, and Medytox.
• Small Caps: Top 10 stocks include Hanjin Shipping, KC Tech, Hanmi Semiconductor, Daekyo, WeMade Entertainment, Korea District Heating, Ecopro, KG Inicis, Able C&C, and Samsung Fine Chemicals.

6. Market Valuations

• Forward P/E and P/B:
  • MSCI Korea: Forward P/E and P/B are shown with specific values.
  • Kospi: Forward P/E and P/B are also detailed.
  • Kosdaq: Forward P/E and P/B are provided with visual data.

7. Fund Flows

• Global Fund Flows:

  • GEM: Net inflows of USD 2,139m, with a 4-week average of USD 349m.
  • Asia ex Japan: Net outflows of USD 801m, with a 4-week average of USD -335m.
  • Latin America: Net inflows of USD 252m.
  • EMEA: Net inflows of USD 146m.
  • EMs: Subtotal net flows of USD 1,736m.
  • Global: Net inflows of USD 976m.
  • Asia Pacific: Net inflows of USD 953m.
  • Western Europe: Net outflows of USD -3,268m.
  • North America: Net inflows of USD 4,068m.
  • DMs: Subtotal net flows of USD 2,729m.
  • Total Net Flows: USD 4,465m.

• Domestic Fund Flows:

  • Equity-type: Net outflows of USD -489m.
  • Domestic-invested: Net outflows of USD -609m.
  • Overseas-invested: Net inflows of USD 121m.
  • Mixed-type: Net outflows of USD -45m.
  • Bond-type: Net inflows of USD 802m.
  • MMF: Net outflows of USD -2,922m.
  • Total BCs: Net outflows of USD -2,654m.

8. Global Stock Markets

• Emerging Markets (EMs): Enjoying higher share-price momentum than Developed Markets (DMs), driven by commodity price hikes, but this is unlikely to last unless global demand and earnings rebound.
• Japan: Weak economic indicators and negative GDP growth in 4Q15 continue to weigh on its economy, despite improved EPS forecasts.

9. Market Calendar

• The document includes a market calendar (p16), but no specific details are provided in the content.

Conclusion

The strategy briefing suggests a cautious approach to the Korean market, with a focus on reducing exposure during the second quarter and monitoring for potential rebounds in the second half. Investors are advised to concentrate on upstream sectors rather than downstream ones due to weak demand and limited price transmission. The analysis also highlights the importance of tracking EPS forecast changes and market valuations across different sectors and regions.