20160629-三星证券-Perspectives_Weekly_Supplementary_budget_to_impact_market_little_20页_1mb

Samsung Market Strategy Summary

Core Content

This document outlines the Samsung Market Strategy report from 2Q 2016, focusing on the Korean stock markets, global markets, and market valuations. It provides insights into the economic outlook, sector performance, budget impact, and investment recommendations based on EPS forecast changes and market sentiment.

Main Points

1. Supplementary Budget Analysis

• A KRW1ot supplementary budget was announced for 2H 2016, aimed at addressing economic risks at home and abroad, including Brexit and industry restructuring.
• The budget is financed using 2016 tax revenues and a KRW1.2t tax surplus from 2015, with no treasury bonds issued.
• The total projected stimulus for 2H 2016 is raised to KRW20t.
• Historical performance shows that supplementary budgets have generally boosted Korea's GDP growth over the past 25 years, except in 2000 and 2008, where approval delays impacted effectiveness.
• The impact on stock markets is uncertain, with only 4 out of 7 budgets leading to Korea outperforming emerging markets in the following six months.
• Stocks are not expected to see a significant lift from this year's budget, especially given the lower volatility of the Korean market.
• The report advises buying stocks only after confirming a visible economic rebound, rather than relying on budget expectations.

2. Korean Stock Market Overview

• Sector earnings momentum showed little change last week, but the Brexit vote may affect future performance.
• The shipbuilding/machinery, steel, energy, and chemicals sectors are considered attractive due to P/B ratios below 1x, despite steady increases in EPS forecasts.
• The Korean market is less volatile than most emerging markets, which may limit the relative performance of any rebound.
• Investor sentiment shifted to flight-to-safety following the Brexit vote, indicating increased risk aversion.

3. Global Market Outlook

• Global investors are more concerned, with a growing risk of EPS forecast cuts.
• The Fed is expected to delay rate hikes, which may fuel yen appreciation and affect Japanese stocks.
• The US market has mildly outperformed global markets over the past three months, and its performance will depend on manufacturing indicators.
• European markets had already turned sluggish before the Brexit vote, while the UK market outperformed France and Germany.

Key Sectors and Performance

1. Sector Fundamentals and Valuations

• MSCI Korea and Kospi sectors are analyzed for P/E, P/B, and ROE.
• Consumer discretionary, financials, and IT sectors have historically shown higher returns following supplementary budgets.
• Telecom services, healthcare, and consumer staples have benefited little from such budgets.
• P/B ratios and EPS forecast changes are used to evaluate sector attractiveness.

2. Top Picks Based on EPS Forecast Changes

• Large-cap stocks with significant EPS growth include:
  • LG Display (A034220)
  • Hyundai Heavy Industries (A009540)
  • Samsung Electronics (A005930)
  • Naver (A035420)
  • Posco (A000660)
• Mid-sized cap stocks with notable EPS forecast changes include:
  • LS Corporation (A006260)
  • Doosan Infracore (A042670)
  • LG Life Sciences (A068870)
  • SK Chemicals (A006120)
  • LG Heavy Industries (A010140)
• Small-cap stocks with significant EPS growth include:
  • Doosan Engine (A082740)
  • Ecopro (A086520)
  • WeMade Entertainment (A112040)
  • Eugene Technology (A084370)
  • Jcontentree (A036420)

Investment Recommendations

• Buy stocks only after confirming a visible economic rebound, as the supplementary budget is unlikely to drive significant stock market performance.
• Sector-specific analysis suggests that cyclical sectors like energy and industrials may benefit more from economic stimulus than defensive sectors.
• Risk aversion is expected to persist in the short term due to Brexit and global economic uncertainty.
• Fund flows indicate a flight-to-safety trend, which may impact emerging market performance.

Key Tables and Charts

• Table 1: Shows supplementary budgets and Korea's relative performance over the following six months.
• Chart 1: Illustrates the positive impact of supplementary budgets on the macro environment.
• Table 2: Details the historical supplementary budgets, including approval times and purposes.
• Table 3: Provides expenditure breakdowns for supplementary budgets.
• Table 4: Summarizes sector performances after budget announcements.
• Chart 2: Compares volatility between emerging markets and Korea.
• MSCI Korea sectors: P/B vs ROE and P/E over past 10 years are visualized to show sector valuations and performance trends.

Conclusion

The supplementary budget is expected to have a limited impact on stock performance, and the Korean market is less volatile compared to other emerging markets. While cyclical sectors may benefit, defensive sectors are unlikely to see significant gains. Investors are advised to wait for a visible economic rebound before making investment decisions.