As U.S. stocks swung sharply after U.S. President Donald Trump's hard-line remarks on China, an analysis said that in a situation where the "Trump risk" has increased volatility in domestic and overseas stock markets, responding with leading stocks is an effective strategy.
Kim Dae-jun, a researcher at Korea Investment & Securities, said in a report published on the 13th, "We will be exposed to volatility, but there is still a lack of clues that the direction of leading stocks has turned," and added, "I do not think it is time to reduce exposure to the information technology (IT) sector, which is currently driving the Korean market."
He explained, "In a stock price correction phase, it will still be advantageous to increase exposure at low prices," adding, "The Korean stock market is also affected by the United States, making a nimble response difficult, but this is exactly when we should focus more on leading stocks with solid earnings."
Kim said, "The market has been feeling overheated, and the valuation level was such that it could stoke these concerns," adding, "The current 12-month forward price-earnings ratio (PER) of the S&P 500 index is above 22 times. Although that is lower than during the early-2000s IT bubble (24.5 times), the elevated valuation level was enough to act as a burden."
He said, "In this situation, President Trump's China-targeted tariff regulations acted as a negative factor that cooled sentiment," adding, "The United States is currently experiencing a shutdown, and with no seed of a solution in sight, the return of the Trump risk quickly spread anxiety in the market."
Kim said, "Coincidentally, the weakness in U.S. economic indicators is being confirmed little by little, and releases of key indicators with large market impact, such as employment and inflation, are being delayed due to the shutdown," adding, "In the end, the difficulty of assessing the current situation from a macro perspective makes it hard to respond at an index top phase."
On Friday the 4th, U.S. stocks swung sharply, with the S&P 500 index falling 2.7% after President Trump's hard-line remarks on China. The Philadelphia Semiconductor Index, which is closely linked to Korean stocks, also widened its losses. IT, which had led the market, also came under heavy correction pressure.