2017. 12. 27 Samsung Model Portfolio Focus to shift from seasonality to fundamentals December review: Volatility hikes in major markets worldwide carried over from November into December, attributable to year-end seasonality on profit-taking ahead of book closing. US markets have continued to reach new highs, with the recent passage of tax 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 have largely been absent since the 2008 financial crisis, Kospi small caps and Kosdaq-listed firms tend to gain preference, which we attribute to repurchasing after year-end selloffs aimed at tax avoidance. There is no reason not to expect this phenomenon to occur in 2018, 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 recommend expanding exposure to them. Forward EPS estimates for the MSCI Korea have been revised up about 6% over the past three months, similar to that seen at end-3Q, but less than 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 target band 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 in December as exposure is raised to the materials, industrial goods, and consumer discretionary sectors from a respective 9%, 12%, and 13% to 10%, 14%, and 14%, while that to the energy, IT, and healthcare sectors is cut from 4%, 35%, and 5%, respectively, to 3%, 33%, and 4%. We raise exposure to Hyundai Motor (HMC) and Posco Chemtech and lower that to SK Innovation and Hanmi Pharmaceutical. Hanwha Chemical, LG Corp, Poongsan, Doosan Bobcat, Hansae, Huons, and Webzen are all added while SK Corp, SK Materials, LG Chem, Korea Zinc, Mando, Samjin Pharm, and TES are all removed. Active risk* in January, by industry Portfolio weightings, by sector Note: As of Dec 22 close; * model portfolio weighting minus Kospi weighting Source: KRX, Samsung Securities Seung Min You Chief strategist strategist.you@samsung.com 822 2020 7024 Hyein Ok Strategist hyein.ok@samsung.com 822 2020 7795 Dongyeol Moon Strategist dongyeol.moon@samsung.com 822 2020 7792 Samsung Market Strategy Portfolio performance vs Kospi (%pts) 1m 3m 6m 12m Samsung (2.50) 4.25 4.86 26.76 Kospi (3.21) 2.23 1.48 19.78 Relative 0.71 2.02 3.38 6.98 Note: Nov 27 - Dec 26 (2)(1)0 0 0 0 0 0 1 2 (3) (2) (1) 0 1 2 3ITConsumer staplesHealth careUtilitiesTelecom servicesFinancialsMaterialsEnergyConsumer discretionaryIndustrials(%pts)IT S/W6%Auto & auto parts7%Materials10%Semiconductors24%Consumer durablesTelecomUtilities6%IT HardwareInsuranceDiversified financials 4%TransportationMedia4%6%Others16%Household goods 3%Capitalgoods12%Banks 5%F&B 3%Retail 3%Energy 3%Pharmaceuticals 4% Model Portfolio 2017. 12. 27 2 Focus from seasonality to fundamentals Summary: While distinct stock market trends in January of each year have largely been absent since the 2008 financial crisis, Kospi small caps and Kosdaq-listed firms tend to gain preference, which we attribute to repurchasing after year-end selloffs aimed at tax avoidance. There is no reason not to expect this phenomenon to occur in 2018, 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 recommend expanding exposure to them. Forward EPS estimates for the MSCI Korea have been revised up about 6% over the past three months, similar to that seen at end-3Q, but less than 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 target band for January is set at 2,420-2,580 Forward EPS estimates for the MSCI Korea have been revised up about 6% over the past three months, similar to that seen at end-3Q, but less than 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. In contrast, the industrial goods (including shipbuilding), consumer discretionary, health care, and utilities sectors have all seen downward EPS forecast rev