On the weekend, cease-fire talks between the United States and Iran took place, but after a 21-hour marathon of negotiations, they failed to reach an agreement. As a result, war risk still lingers over financial markets. Because the cease-fire period is only two weeks, if the two sides cannot narrow their differences, the negotiations could drag on or uncertainty could grow.
The core sticking points of the talks boil down to Iran's nuclear development and control of the Strait of Hormuz. In particular, the United States has little room to concede on uranium enrichment, as the justification for the current conflict lies in Iran's denuclearization. Iran, on the other hand, is sticking to the position that sanctions relief or monetary compensation for war damage must come first, suggesting that a deal will likely require considerable time and political resolve.
Some say market volatility from geopolitical risk has passed its peak. Experts advised that now is the time to take a medium- to long-term view and use it as an opportunity to increase equity exposure.
In particular, the first-quarter earnings season kicked off in earnest last week, starting with Samsung Electronics. Lee Sang-yeon, a researcher at Shinyoung Securities, said, "When external variables like war dominate the market, belief in earnings visibility and fundamentals carries more weight than valuation multiples."
Shinyoung Securities projected solid results for export-oriented sectors such as semiconductors, trading houses and capital goods, IT hardware, and machinery. In particular, for semiconductors and trading houses and capital goods, it said the sectors are undervalued relative to fundamentals, noting that despite upward revisions to the latest 12-month forward earnings per share (EPS) estimates, share-price reactions have been muted.
Daishin Securities likewise urged investors to use the current market volatility as a chance to increase exposure. Lee Kyung-min, a researcher at Daishin Securities, said, "If geopolitical risk eases or is resolved, a strong rebound in the stock market is expected," adding, "With the Korea Composite Stock Price Index (KOSPI) forward price-earnings ratio (PER) at 8 times or lower, this is an opportunity to increase both leader stocks and neglected names, and a partitioning buy-on-dips strategy is valid."
Daishin Securities pointed to semiconductors, energy, retail, banks, securities, nonferrous metals, and IT hardware as sectors where earnings forecasts are being revised up and foreign funds are flowing in. Lee said, "Sectors such as secondary batteries, internet, and pharmaceuticals and biotechnology also merit attention for their attractive prices and valuations and the potential for an earnings turnaround."
Hyundai Motor Securities cited SK hynix, Hanwha Systems, Kakao, HMM, LIG Nex1, POSCO International, S-oil, Korea Investment Holdings, NH Investment & Securities, Samyang Foods, Samsung Securities, SK Biopharmaceuticals, Doosan Bobcat, Orion, Daeduck Electronics, and others as first-quarter earnings names to watch.