We remain positive on the KOSPI, given the combination of: 1) a likely
shift in incremental global growth drivers later this year (from
emerging economies to developed economies), 2) room for positive
surprise in the pace of the US’s recovery, 3) re-emerging relative
valuation merit and earnings upgrade potential, given the presence of
globally competitive exporters with high operating leverage to an
OECD recovery, 4) an attractive KRW, and 5) reduced local selling
pressure going forward.
■ As such, while some short-term pullback looks likely, following the
recent strong bounce, we advise investors to accumulate key Korean
blue chips, using the recent weakness with a revised 12-month KOSPI
target of 1,650 (from 1,500, which puts the KOSPI at an historical
average 12-month forward P/B of 1.3x).
■ With a likely shift in incremental global growth contributor later this
year, our positive sector bias lies in: 1) globally competitive exporters
with high operating leverage to an OECD recovery and 2) select
financial and consumer stocks with relative valuation merit.
■ Along this line, our top-stock selection includes SEC, POSCO,
KB Financial, LG Display, Hyundai Mobis and Lotte Shopping.
Meanwhile, we continue to avoid deep, long-duration cyclical sectors
(like the industrial sector) and telecoms, including Hyundai Heavy,
Doosan Heavy, NCSoft and Honam Petrochemical.