After Samsung Electronics reported earnings, Korea's stock market, which plunged led by semiconductors, could rebound alongside a recovery in leading stocks and a bounce in names with steep losses, according to an analysis. With semiconductor concentration easing and foreign inflows improving, buying could spread across the market.
Kim Dae-jun, a researcher at Korea Investment & Securities Co., said in a report on the 13th, "Now is a time when we can expect both a recovery in leading stocks and a rebound in names that fell too far," naming hardware and holding companies as sectors to watch.
Kim assessed the recent KOSPI pullback as excessive. After Samsung Electronics' preliminary earnings last week, profit-taking poured in and the KOSPI's 12-month forward price-earnings ratio (PER) fell to 6.17 times on the 8th. He said this falls into an extremely undervalued range, below two standard deviations from the 10-year average PER (10.2 times).
There have been similar cases in the past. In Oct. 2008 during the global financial crisis, the KOSPI PER fell to around 6 times, but after a Korea-U.S. currency swap was signed, liquidity concerns eased and both PER and the index rebounded quickly.
This time, SK hynix's listing of American depositary receipts (ADR) could act as a positive factor. With the ADR listing increasing dollar inflows, the won-dollar exchange rate is stabilizing and foreign selling is gradually subsiding, the analysis said.
Changes are also appearing in the supply-demand structure. The share of transaction value concentrated in Samsung Electronics and SK hynix is gradually declining. On the 10th, the two companies' transaction value accounted for 54.6% of total KOSPI turnover, down 8.3 percentage points from a week earlier. The share of turnover in single-stock semiconductor ETFs and ETNs also shrank to 27.5% from 34.7% over the same period.
Kim interpreted this as a sign that semiconductor concentration is easing. He explained that on the 10th, the share of rising names among KOSPI-listed stocks increased to 84%, showing that the rebound was spreading to sectors beyond semiconductors.
He said, "In the latter part of last week, stocks outside semiconductors also recovered together," adding, "Rather than a market relying on one or two names, we saw gains even in stocks that had suffered large declines."
He added, "Based on relative strength index (RSI) by sector, hardware and holding companies, which fell excessively, are likely to mean-revert if semiconductor concentration continues to ease and the exchange rate stabilizes," advising, "Focus on stocks with a 20-day deviation of 90% or lower, upward revisions to 12-month forward EPS, and net foreign buying."