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Samsung Model Portfolio Summary

Core Content

The Samsung Model Portfolio is a strategic investment tool designed to reflect the analysts' outlook on market trends and sector performance in South Korea. It evaluates the relative performance of the portfolio compared to the Kospi index and adjusts sector exposure based on expected earnings momentum and valuation changes.

Main Points

• Market Volatility in August: Global markets, including the Kospi, experienced increased volatility in August due to rising US-North Korea tensions and policy uncertainties. The Kospi hit a year-to-date (YTD) low on August 11 but has since resumed a gradual uptrend.

• Portfolio Performance: The Samsung Model Portfolio fell by 3.85% from July 26 to August 28, underperforming the Kospi by 122 basis points (bps). This performance was influenced by sector rotation and market conditions.

• September Outlook: Despite ongoing uncertainties, the analysts expect:

  • Limited impact from the US Fed's potential balance-sheet cutting plan, as the central bank has already signaled a moderate approach.
  • Increased volatility due to delays in the US FY18 budget and sovereign debt ceiling increases.
  • A Kospi target band of 2,330–2,480 for September.
  • Gradual exposure expansion to equities, with IT and financials sectors maintained under a buy-and-hold strategy.
  • Chemicals and steel sectors identified as the most promising for the second half of 2017 (2H17) due to expected earnings and valuation improvements.

Key Information

• Portfolio Beta: Increased from 1.01 to 1.02, reflecting a more aggressive stance.
• Sector Exposure Changes:
  • Increased: Energy (2% → 3%), Materials (9% → 11%), IT (30% → 31%).
  • Decreased: Financials (15% → 13%), Industrial goods (13% → 12%), Telecom services (3% → 2%).
• Overweight Sectors: Energy, materials, and consumer discretionary.
• Underweight Sectors: Industrial goods, IT, and telecom services.

Portfolio Changes

Added Companies:

• LS Industrial Systems
• NCsoft
• LG Chem
• Korea Zinc
• Pan Ocean
• Paradise
• Dentium
• TES
• KC Tech

Removed Companies:

• LG Display
• NHN Entertainment
• KCC
• S1
• GS Engineering & Construction
• Hyundai Electric
• AfreecaTV
• Hyundai Green Food
• Yuhan

Adjusted Exposure:

• Lotte Himart: +1%
• SK Innovation: +1%
• S&T Motiv: +1%
• KB Financial Group: -1%
• Hana Financial Group: -1%
• SK Telecom: -1%

Portfolio Weightings by Sector

Relative Performance

Summary of Key Sectors

• Energy: Expected to benefit from reflation policies and macroeconomic conditions.
• Materials: Strong 2H17 earnings and valuation outlook.
• IT: Continued exposure, but reduced from previous levels.
• Financials: Maintained at 13%, with a slight reduction in exposure.
• Consumer discretionary: Strong performance and potential for growth.
• Health care: Strong relative performance, driven by sector-specific dynamics.

Conclusion

The Samsung Model Portfolio reflects a strategic adjustment in response to market volatility and sector rotation. The focus is on sectors with strong earnings and valuation prospects, particularly chemicals and steel, while reducing exposure to IT and financials. The analysts remain cautiously optimistic about the Kospi's performance, with a target band set for September. The portfolio's beta has been increased slightly, indicating a more aggressive approach to capturing market opportunities.