Experts in the securities industry are forecasting that the stock market will seek a new direction this week as expectations of earnings results clash with the burden of share prices. NH Investment & Securities analyzed that the KOSPI index is likely to fluctuate between the 5,800 and 6,700 index range over the week from the 27th to the 30th. Researcher Na Jeong-hwan emphasized that, given such market trends, market leadership will ultimately be determined by corporate earnings, noting that it is difficult to predict the direction based solely on simple supply and demand or policy expectations.
Looking at the valuation level of the domestic stock market currently, the price-to-earnings ratio relative to earnings and the price-to-book value ratio relative to assets are sending contradictory signals. The 12-month forward price-to-earnings ratio is 8.5 times, falling below the historical average and thus interpreted as a relatively undervalued range; however, the trailing price-to-book value ratio is 1.99 times, located near a historical high. Researcher Na explained that the low price-to-earnings ratio relative to earnings means that future earnings surges have already been reflected in share prices, while the high price-to-book value ratio relative to assets is the result of the simultaneous effects of improved capital return rates centered on semiconductors and power infrastructure and expectations of the value-up policy. He stated that rather than simply defining it as overvalued or undervalued, it is a complex zone where it is cheap relative to earnings but expensive relative to capital.
In terms of investment strategy, advice has emerged that portfolios should be constructed around industrial sectors with proven results. Researcher Na stated that while maintaining core positions in leading stocks with proven results such as semiconductors, power equipment, nuclear power, and defense, it is necessary to selectively include stocks showing improved earnings within sectors where the year-on-year improvement in capital return rates is significant. In particular, given that earnings announcements by major US technology companies this week could act as important variables for the domestic market, special caution is required. The earnings announcements of major big-tech companies such as Google, Meta, Microsoft, and Amazon are key indicators that will show the direction of AI equipment investment, and it is expected to have a ripple effect on the entire value chain related to semiconductors, power equipment, and energy.
In addition, the earnings announcement schedules of major domestic companies are also attracting market attention. Samsung SDI, Hyundai Engineering, HD Hyundai Electric, Samsung Electro-Mechanics, LG Energy Solution, and Hanwha Aerospace are set to announce their results on the 28th and 29th ahead of their year-end announcements. Researcher Kang Jin-hyuk of Shinhan Investment & Securities predicted that it will be possible to judge whether the upturn in the shipbuilding, defense, and power equipment industries will continue through this week's earnings announcements. He emphasized, in particular, that it is necessary to verify whether the expectations already reflected in share prices for battery companies where an earnings turnaround is expected are backed up by actual results.
Lastly, the interest rate policy of the US Federal Reserve and the re-election issue have emerged as important factors that could affect stock market volatility. The wording of the statement to be released at the Federal Open Market Committee meeting and Chairman Jerome Powell's remarks on oil prices have emerged as the market's top concerns. Consensus forecasts reflect the view that interest rate holds are likely. Researcher Na pointed out that since the West Texas Intermediate crude oil price is currently high compared to last year, the key issue is how the Federal Reserve will express the risk of inflation due to rising oil prices. He saw that if international oil prices stabilize, the possibility of resuming interest rate cuts in the second half of the year may open, which could have a positive impact on the stock market. Although Chairman Powell's term ends on May 15, he will continue to perform his current role until the next chairman is approved, and the outcome of Senate votes is expected to be a variable in the process of investigations by the Department of Justice.