20170328-三星证券-Kospi_target_revision__Expand_equity_exposure_gradually_14页_889kb

Samsung Market Strategy Summary

Core Content

This document outlines the market strategy for the Korean stock market (Kospi) and global equities for 2017 and 2018, focusing on equity exposure, sector performance, and the potential for market rerating. Key themes include the role of corporate earnings, equity risk premium, and macroeconomic factors in driving market movements.

Main Points

• Kospi Target Range Revised:
  The upper bound of the Kospi target range was raised from 2,210 to 2,330 for 2017, equivalent to a P/B ratio of 0.87x–1.03x. This reflects improved corporate earnings and a decline in equity risk premium.
  The target for 2018 is projected to be 2,450, which would imply a P/B ratio exceeding 1.0x for the first time in several years.

• ROE Recovery and Market Rerating:
  The document emphasizes that a structural recovery in Return on Equity (ROE) is necessary for the Kospi to rerate. While ROE has shown improvement, it remains uncertain whether this is sustainable.
  The ROE rebound in 2016 was attributed to corporate cost-cutting and improved export performance, but long-term growth will depend on fundamental changes in corporate earnings and increased global market share.

• Global Investment Environment:
  The global economy is in an expansion phase, with investors favoring risk assets such as equities and commodities. The US mid-term elections in 2018 and the Fed's monetary policy, particularly its approach to the natural rate of interest (R*) and quantitative tightening (QT), are seen as key inflection points.
  The expansion is expected to last at least until late 2018, with a potential slowdown in Q2 due to base effects and uncertainty around Trump's reflationary policies.

• Sector Performance and Exposure:
  Cyclicals such as semiconductors, shipbuilding/machinery, IT hardware, and banks have historically outperformed the Kospi during economic recoveries and expansions.
  Energy, chemicals, transportation, autos, and retail sectors have underperformed relative to the Kospi in recent periods. The strategy recommends expanding exposure to these sectors, as they are expected to perform better in the upcoming expansion phase.
  IT and financial stocks are expected to maintain investor interest, but their performance may slow compared to the recovery phase.

• Yield Curve and Investor Preferences:
  The yield curve is expected to steepen, favoring value stocks and large caps. This suggests a shift in investor preferences toward these types of assets during the expansion phase.
  The strategy advises a gradual increase in equity exposure, with a focus on materials and industrials, while maintaining a cautious approach to avoid overbuying.

Key Information

• ROE and EPS Growth:
  The Samsung Universe's EPS is forecasted to grow by 28.7% year-over-year in 2017.
  ROE is expected to increase by 5.3% in 2018, which could signal a structural recovery if sustained.

• Equity Risk Premium (ERP):
  The ERP is projected to fall to a three-year low by year-end 2017, contributing to the upward revision of the Kospi target range.
  A continued decline in ERP and improved macroeconomic data could support further market growth.

• Global Macroeconomic Factors:
  The US economy is at full employment, facing inflationary pressures, and is expected to benefit from Trump's infrastructure investment plan.
  The Fed's monetary policy, particularly its shift toward QT, will be influenced by its perception of R* and could impact the duration of the global bull market.

• Market Timing and Rotation:
  A temporary pullback in global stock markets is expected in Q2 2017, which could present a buying opportunity.
  A soft rotation into risk assets is anticipated through late 2018, with safe assets still holding value due to global liquidity and Fed prudence.

• Investment Recommendations:

  • Gradually increase equity exposure, especially in materials and industrials.
  • Maintain caution against overbuying cyclical stocks.
  • Focus on large caps and value stocks as they are expected to outperform in the expansion phase.
  • Monitor the yield curve for shifts in investor preferences.

Conclusion

The strategy suggests a cautious and gradual approach to increasing equity exposure, with a focus on sectors that historically perform well during economic expansions. The key to a sustainable market rerating lies in structural improvements in ROE, driven by corporate earnings growth and global competitiveness. The document also highlights the importance of the US mid-term elections and the Fed's monetary policy in determining the future direction of the global market.