Samsung Model Portfolio:Focus to shift from seasonality to fundamentals

December review: Volatility hikes in major markets worldwide carried over fromNovember into December, attributable to year-end seasonality on profit-taking ahead ofbook closing. US markets have continued to reach new highs, with the recent passage oftax reform expected to help them sustain momentum, but bourses in emerging markets(EMs) remain sluggish. The Samsung Model Portfolio fell 2.50% over Nov 27-Dec 26,outperforming the Kospi by 71bps.

    January outlook: While distinct stock market trends in January of each year havelargely been absent since the 2008 financial crisis, Kospi small caps and Kosdaq-listedfirms tend to gain preference, which we attribute to repurchasing after year-end selloffsaimed at tax avoidance. There is no reason not to expect this phenomenon to occur in2018, but once such seasonality passes, attention should again shift toward fundamentals.

    The current combination of solid macro conditions, corporate earnings improvements,and monetary easing worldwide ought to bode well for equities, thus we still recommendexpanding exposure to them. Forward EPS estimates for the MSCI Korea have beenrevised up about 6% over the past three months, similar to that seen at end-3Q, but lessthan at end-1Q and end-2Q, so EPS growth momentum remains intact, albeit slowing.

    The IT and telecom services sectors have beaten the market in terms of EPS forecast hikes,while the energy, materials, and financials sectors have been in line. Our Kospi targetband for January is set at 2,420-2,580.

    Key portfolio changes: We set portfolio beta for January at 0.96, up from vs 0.94 inDecember as exposure is raised to the materials, industrial goods, and consumerdiscretionary sectors from a respective 9%, 12%, and 13% to 10%, 14%, and 14%, whilethat to the energy, IT, and healthcare sectors is cut from 4%, 35%, and 5%, respectively, to3%, 33%, and 4%. We raise exposure to Hyundai Motor (HMC) and Posco Chemtech andlower that to SK Innovation and Hanmi Pharmaceutical. Hanwha Chemical, LG Corp,Poongsan, Doosan Bobcat, Hansae, Huons, and Webzen are all added while SK Corp, SKMaterials, LG Chem, Korea Zinc, Mando, Samjin Pharm, and TES are all removed.