March 25, 2013

Technical analysis

Bet on yen appreciation
Exodus of foreign funds to be stemmed by weakening dollar Following the sharp rise in the won/dollar exchange rate since mid-March, foreign index-related funds have been leaving Korean shores. A technical analysis of the yen/dollar and dollar/euro exchange rates strongly suggests that the strength of the dollar will be limited. The value of the yen is expected to take an upturn and the rise in the won/dollar exchange rate to moderate. This may lead to a rebound of the stock market index. Yen/dollar rate shows reliable signs of short- and mid-term decline The weekly yen/dollar exchange rate chart shows that ADX peaked above 80 and then turned downward. As the exchange rate cools from the mid-term overheating, the daily chart shows reliable signs of a decline. In the course of repeatedly reaching new highs in February and March, the MACD and ADX have shown downward divergence, and the rate has dropped below the short-term ascending trend line. Hence, the yen/dollar exchange rate is likely to fall (strengthening of yen). Prediction of yen upturn directs attention on auto industry A drop in the yen/dollar exchange rate is likely to push the won/yen exchange rate up. A weakening yen is expected to ease the auto industry’s relative return gap. Stock picking: Attention on increase of the won/yen exchange rate We propose the following strategy premised on strengthening of the yen: 1) buy KOSPI 200 futures and sell SGX Nikkei 225 futures; 2) buy Kia Motors shares and sell Toyota shares; and 3) increase weighting in Kia Motors.

[ Technical Analyst ]
Donghwan Choi
☎ 82-2) 3772-1796  dhchoi@shinhan.com

Downturn of dollar to limit further withdrawal of foreign index funds . 2013 Summary The purpose of this report lies in providing market analyses and forecasts while suggesting ideas for selecting short-term strategic stocks. Our suggestions may differ from the opinions of our sector analysts as they are based on technical analyses.Focus on auto industry and increase weighting in Kia Motors on prospects for a rise in the won/yen exchange rate .000 and W66.TECHNICAL ANALYSIS Bet on yen appreciation March 25.Downturn of yen/dollar rate (yen appreciation) and limited drop in dollar/euro (euro appreciation) rate expected .Daily and weekly yen/dollar rate charts show reliable signs of decline .Decoupling caused by exodus of foreign money resulting from weakening of the won . Market view .000 …2 . Top 20 in market capitalization Source: Shinhan Investment Corp.Possible auto sector rally from upturn of the yen is positive for direction of the stock index .Samsung Electronics likely to climb as Apple shares begin technical rebound Part Ⅱ. Resistance for Kia Motors at W62. Stock picking idea Quantitative analysis N/A Qualitative analysis Bet on strengthening of yen: attention on rise of won/yen exchange rate 1) buy KOSPI 200 futures and sell SGX Nikkei 225 futures 2) buy Kia Motors shares and sell Toyota shares 3) increase weighting in Kia Motors. Summary table Part Ⅰ.

090 1. Since the trend line tested support in November 2012 and February 2013. As for the dollar/euro exchange rate.000) (90. foreign investors turned to short non-arb positions. a further decline is technically burdensome. Figure 2. Figure 1.930~2.000) (60.030p range. The decoupling with the New York market since March is largely attributable to the exodus of foreign index funds resulting from the plunge in the won’s value. KOSPI moves in 1. foreign investors swung to net-short positions in the futures market.050 1.000) Source: Shinhan Investment Corp. the won/dollar exchange rate overcame resistance at the W1. the bottom of early February.29.070 1. 2013 Part I.930p Weakness of the won to accelerate exodus of foreign index funds The KOSPI has dropped below the mid-term ascending trend line which has been in place since July 2012.000 0 (30.TECHNICAL ANALYSIS Bet on yen appreciation March 25. The pace of the dollar’s appreciation is expected to moderate and the won/dollar rate is not likely to rise further.130 dollar/won rate (LHS. As the won weakened. inverted) Accumulated foreign futures (RHS) Accumulated foreign nonindex arbitrage trading (RHS) 17/01 01/02 19/02 07/03 (W100mn) 22/03 30.930p. …3 . thereby sparking a rebound of the stock market index.110 1.090-1. After staying on the sidelines until early March. Withdrawal of foreign index funds due to weakening won since mid-March triggers KOSPI correction (won) 02/01 1. additional decline will likely be limited with support at US$1. The primary support line is 1. A rebound in the value of the won is expected to lead to an inflow of foreign funds. Technical analysis suggests that the yen/dollar exchange rate has entered a short-term correction phase. Market View Decoupling caused by exodus of foreign money from weakening of the won KOSPI breaks below midterm ascending trend line: support at 1. breakout below the mid-term ascending trend line 2200 KOSPI Daily Log-scale Downturn of dollar and rebound of stock index expected 2100 2000 1900 1800 1700 J A S O N D 2012 M A M J J A S O N D 2013 M A Source: Shinhan Investment Corp.27 and US$1.100 interval and climbed. In mid-March.

050. Figure 3. has begun to stabilize from mid-term overheating.120 The won/dollar rate has steadily fallen to hit W1. Shinhan Investment Corp.120 1220 1200 1. the bottom of the recent box range. The rate soon rebounded after it failed to break below W1.120.185 KRW Daily Log-scale Yen/dollar rate cools after mid-term overheating 1180 1160 1140 1120 1100 1080 1060 1. While the weekly ADX points to stabilization after overheating. A falling yen/dollar rate means a strengthening yen and weakening dollar. The increase in the yen/dollar rate. the daily chart shows a significant declining (sell) signal. The ADX (trend strength indicator) turned back down after surpassing 80.054 1040 2011 J A S O N D 2012 M A M J J A S O N D 2013 M A Source: Shinhan Investment Corp. Figure 4. Yen/dollar rate stabilizes after mid-term overheating JPY Weekly Log-scale 120 110 100 90 80 80 60 ADX 40 20 2003 2005 2006 2007 2008 2009 2010 2011 2012 201 Source: Bloomberg.054 early this year after reaching a short-term high at W1. Strong resistance is expected at W1. Won/dollar rate to face resistance at W1. In Figure 4 below.185 in May 2012. The current level represents a 50% retracement of the decline during the same period.TECHNICAL ANALYSIS Bet on yen appreciation March 25. which led the dollar’s appreciation. …4 . note that the yen/dollar rate entered a correction phase after ADX peaked alongside a rising yen/dollar rate at the end of 2005. It is currently near W1. 2013 Reasons behind the strengthening yen and weakening dollar Won/dollar rate to face resistance at W1.120.

Figure 6 below shows that the decline of MACD and ADX is slowing. the rate’s peak was higher in March than in February. MACD (trend following indicator) and ADX (trend strength indicator) did not further their highs and a falling divergence signal appeared. the euro/dollar rate.0 75 60 45 30 15 May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar Ap ADX MACD Source: Bloomberg. Figure 6.29 and US$1. Figure 5. meaning a shift in the shortterm trend from yen depreciation to yen appreciation. On the other hand.29 and US$1.01 0. The euro is testing significant support levels at US$1. 2013 Yen/dollar rate. MACD and ADX show downward divergence as yen/dollar rate breaks below short-term ascending trend line 95 JPY Daily Log-scale Euro/dollar rate to find support at US$1. a significant declining signal appeared.00 MACD 60 40 20 Dec 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Mar A ADX Source: Bloomberg. is unlikely to fall further. which has been declining since early February.35 1. However. …5 .27 90 85 80 1.0 0. Shinhan Investment Corp. break below shortterm upward trend line The daily yen/dollar rate chart indicates a breakout below the short-term ascending trend line as the rate enters the JPY94 range.30 1.27.120 range. euro selling slows EUR Daily Log-scale 1. Support of euro confirmed at US$1. A downturn in the yen/dollar rate and a limited additional fall of the euro/dollar rate are factors for a weaker dollar. At the same time.20 0.5 1. As shown in Figure 5. Shinhan Investment Corp.25 1. As the dollar weakens.29. the won/dollar rate is likely to cap its rise at the W1.TECHNICAL ANALYSIS Bet on yen appreciation March 25. MACD and ADX show downward divergence. It will serve as a strong sell signal combined with the weekly ADX surpassing the peak.5 0.

the relative return trend of Kia Motors and Toyota moves in tandem with the won/yen forex rate trend when the October 2 closing price (2012) is set as 100. In Part II. When the yen/dollar rate undergoes a correction. inverted) won/yen rate (RHS) (JPY) 15 14 13 12 11 10 10/12 11/12 12/12 01/13 02/13 03/13 OVERWEIGHT on auto sector given signs of a strengthening yen Stock-picking ideas based on a strong yen Source: Bloomberg. The relative return and the won/yen rate trends have a correlation of 97. we are going to present three strategies for an increase in won/yen rate. Ever since the yen’s weakness accelerated from last October. Shinhan Investment Corp. the long/short pair strategy tapping into the KOSPI 200 and Nikkei 225 futures is possible. the yen’s value will strengthen and push up the won/dollar rate. In the same vein. Auto sector to benefit from strong yen (2012. Figure 7. while the domestic stock market is expected to rebound on the weak dollar. Kia Motors’ share price pulled back from the W70.10. 2013 Spotlight on the auto sector: Focus investment strategy on the won/yen rate Correlation between won/yen rate and Kia/Toyota performance is 97% since October The auto industry suffers the most from the weakening yen. As a result.000 level to the W50.TECHNICAL ANALYSIS Bet on yen appreciation March 25.5%. The Japanese stock market is highly likely to face corrections on the strong yen.000 level. We recommend OVERWEIGHT on the auto sector as both daily and weekly signals point to a strong yen.02 = 100) 105 90 75 60 45 30 10/12 Kia Motors/Toyota relative returns (LHS. Investors are advised to buy Kia Motors and sell Toyota. As shown in Figure 7. Note: The won/yen exchange rate and relative returns of Kia Motors/Toyota since early October 2012 when the yen’s weakness accelerated …6 . the relative return gap between Kia Motors and Toyota is expected to narrow down.

which was in place for six months. This indicates that the short-term trend has turned upward. Samsung Electronics shares are likely to rise on Apple’s technical rebound. As seen in Figure 9. Figures 8. The KOSPI has fallen out of its mid-term upward trend line. 2013 Samsung Electronics confirms support on Apple’s technical rebound Samsung Electronics’ mid-term upward trend line being tested Samsung Electronics has maintained a strong correlation coefficient with the KOSPI since early this year. but the bottom of MACD was raised.TECHNICAL ANALYSIS Bet on yen appreciation March 25. Apple to make a short-term technical rebound 700 650 600 550 500 Apple Daily Log-scale 450 10 0 -10 -20 MACD Augus t Septem ber Novem ber Decem ber 2013 February March Apr Source: Bloomberg. Samsung Electronics has moved in the same direction as the overall stock market. As the leading domestic stock. The stock broke above the upper limit of its mid-term downturn trend line. Apple shares hit a new low in February. led by the advance of the auto sector amid the strong yen and Samsung Electronics shares on Apple’s technical rebound. but Samsung Electronics remains in place. Apple shares show a meaningful change. a divergence is confirmed 1500000 1400000 1300000 1200000 1100000 1000000 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar A Source: Shinhan Investment Corp. Samsung Electronics’ mid-term upward trend line 1600000 SamsungElec Daily Log-scale Apple shares breach the upper limit of mid-term downturn trend line. Figure 9. Shinhan Investment Corp. A divergence between the share price and MACD is confirmed. and the downward trend line is broken at the same time. …7 . The KOSPI should gain.

SELL: Toyota 3) Overweight: Kia Motors …8 . SELL: SGX Nikkei225 futures 2) BUY: Kia Motors. UW.TECHNICAL ANALYSIS Bet on yen appreciation March 25. we recommend the long/short pair strategy mentioned in Part I. Our three stock-picking areas are based on: 1) quantitative analysis. Stock-picking ideas Quantitative analysis: OW.N/A Qualitative analysis: Bet on the strong yen – focus on the auto sector 1) BUY: KOSPI200 futures. 2013 Part II. and 3) top 20 stocks by market cap. 2) qualitative analysis. we are going to pick stocks based on three ideas and present investment strategies (Overweight/Underweight). Overweighting exposure to Kia Motors and Hyundai Motor is expected to help investors outperform the market. In this report. Stock-picking ideas In Part II.

000 24.500 Closing price on Jan. 22 Closing price on Jan.00 4.000 7.900 17.74 21.500 111. 2013 BUY Samsung Electronics / SELL Apple BUY Samsung Electronics / SELL KOSPI200 BUY KOSPI200/ SELL S&P500 Average Mar.31) 2.14 Closing price on Nov.70 0. 25 .050 195.17 Absolute returns (%) (9.13) 0.19 (0.30 15.500 96. 2013 Performance of our stock picks Performance of stocks Oct.23) (4.750 34.43 9.250 24.73 Relative returns (%) (7.39) 19.88 (3. 2012 SBS Hanwha Life Insurance Daewoo International Orion Com2uS Hotel Shilla Average Dec. 26 (won) (won) 37.84 6.700 Closing price on Nov.13) Absolute returns (%) 5.200 Closing price on Jan.43 30. 22 Closing price on Feb. 2012 Mando SeAH Besteel Hyundai Heavy Industries Honam Petrochemical Average Jan.000 61. Note: 1) Relative returns against KOSPI 200 2) For Underweighting stocks.44) 0.550 1.000 156.55 3.74 Relative returns (%) Relative returns (%) (8. 2013 LG Chem SK Innovation Lotte Shopping CJ Cheiljedang Average Feb.500 19. 16 (won) 128.420 40.36) 13.000 383.46) 1. absolute returns and relative returns against KOSPI 200 are calculated based on Sell position 3) Absolute returns of long/short pairs in February 2013 based on the Jan.54 27. 22 period.67 10.000 149.500 28.33 5.49) Relative returns (%) (12.050 20.99) Absolute returns (%) (0.26 (2.TECHNICAL ANALYSIS Bet on yen appreciation March 25.43 3.45 24.56 7.48) Absolute returns (%) (8.55 4.500 257. KOSPI200 and S&P500 based on futures Recommendation Overweight Overweight Overweight Recommendation Overweight Overweight Overweight Underweight Underweight Underweight Recommendation Overweight Overweight Overweight Overweight Recommendation Overweight Overweight Overweight Overweight Recommendation Closing price on Oct.31) (4. 26 Closing price on Sep.600 69.52 Relative returns (%) (6. Average Source: Shinhan Investment Corp. 2 (won) (won) 309.56 21.000 179.14 13.530 39. 25 (won) (won) - Recommendation Overweight Overweight Overweight Overweight Closing price on Mar.75) 1.18) 0.500 50.000 340.300 Absolute returns (%) (18.81) (4.500 366.500 7.12 19.08 0.25) (0.075.21 (4.64) (1.500 370.750 248.12) (5. 16 Closing price on Oct.05 3.000 362.000 61.800 1.18 Absolute returns (%) (12.000 169.26) 0.000 197. 2013 S1 Hancom Partron Daesang Corp. 24 (won) (won) 13.37 (0.040.Feb. 25 Closing price on Jan.47) 15.39 (1. 22 (won) (won) 60.300 48.20) 4.600 30.000 Closing price on Feb.400 25.000 40.02) 1. 2 (won) 127. 2012 Dongkuk Steel Mill SK CJ Korea Express Average Nov.47 3.850 …9 .20 Relative returns (%) (4.

Kia Motors’ weekly chart: Mid-term downtrend line is breached 90000 80000 70000 60000 50000 KiaMotor Weekly Log-scale 40000 30000 70 60 50 40 30 20 J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M ADX Source: Shinhan Investment Corp. May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar Ap …10 . 2013 Technical analysis on Kia Motors The weekly chart of Kia Motors shows that the stock has begun to move out of the oversold territory since the ADX formed double highs. the short-term upward trend line. which has been in place since midSeptember 2012. The ADX continued to hit new lows. Kia Motors has not been met with new lows since overcoming the mid-term downward trend line. Kia Motors’ daily chart: Divergence between share price and MACD 85000 80000 75000 70000 65000 60000 55000 50000 KiaMotor Daily Log-scale 2000 1000 0 -1000 -2000 MACD 60 50 40 30 20 ADX Source: Shinhan Investment Corp. Figure 10.000 and W66. Kia Motors shares have broken above the upper limit of its downward trend line. the previous support lines. but the bottom of the MACD was raised. The resistance is set at W62.000. Figure 11.000.TECHNICAL ANALYSIS Bet on yen appreciation March 25.000 and W50. The ADX is expected to decline further as it fell below the bottom reached in last December. The support will likely be offered at W53. so it seems to have passed a meaningful mid-term low in January. Kia Motors hit a new low in January. The daily chart confirms an upward divergence signal with the MACD at the bottom reached in January this year.

has issued ELS. Korea 150-712 Tel : (82-2) 3772-2700.958. All opinions and estimates included in this report constitute our judgments as of the date of this report and are subject to changes without notice.shinhaninvest. 0 to 15%. Hyundai Heavy Industries. Lotte Shopping. but we do not hold ourselves responsible for its completeness or accuracy. New York. Luijiazui Ring Road. duplication. Shinhan Investment Corp. Clients should consider whether it is suitable for their particular circumstances before acting on any opinions and recommendations in this report. Youido-dong. Unit 7705 A. LG Chem. Level 77 International Commerce Centre 1 Austin Road West Kowloon. or redistribution of this report is prohibited. ELW based on the Samsung Electronics's asset and floated LP. NY 10019 Tel : (1-212) 397-4000 Fax : (1-212) 397-0032 Shanghai Shinhan Investment Corp. confirms it has issued ELS based on the SK. 2702 Fax : (82-2) 6671-7573 Hong Kong Shinhan Investment Asia Ltd. Shinhan Investment Tower 23-2. -15% or More (As of 25 Jul. This information has been compiled from sources we believe to be reliable. Shanghai Representative Office Room 104. This report is distributed to our clients only. the covering analyst did not maintain any financial interest in the securities or debt instruments convertible into such shares of the company mentioned in this report. Seoul. 2011) Analyst Certification: The following analysts hereby certify that their views on the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Donghwan Choi. . HOLD. PuDong. Shanghai. Huaneng Union Mansion No. Hong Kong Tel : (852) 3713-5333 Fax : (852) 3713-5300 NEW YORK Shinhan Investment America Inc. Kia Motors's asset. -15% to 0. 1325 Avenue of the Americas Suite 702. Yongdungpo-gu. Shinhan Investment Corp. SK Innovation. Hanwha Life Insurance. Trading BUY. It is not an offer to sell or solicitation of an offer to buy any securities. Over +15%. REDUCE. China Tel : (86-21) 6888-9135/6 Fax : (86-21) 6888-9139 SHIC Rating Classifications: BUY. As of the date of this report.com Shinhan Investment Network SEOUL Shinhan Investment Corp. and any unauthorized use.www.

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