Stock Prices Won't Fall Even if Interest Rates Rise

Wizwave CEO Lee Kwon-hee highlighted the importance of corporate communication, citing the market reaction to Broadcom's past earnings announcement. He explained that at the time, despite very strong numbers and guidance, Broadcom's stock price actually fell after the conference call.

This showed that market investors demanded deeper communication about the context of announcements and future outlook, rather than simply accepting corporate statements. CEO Lee analyzed that this experience served as a learning effect for the market, raising expectations for corporate communication methods.

CEO Lee illustrated the lack of communication between companies and market investors with the case of Hyundai Motor's Investor Day. At the time, market investors expected a concrete roadmap for Hyundai Motor's humanoid robots, but the company repeatedly discussed its automobile business, leading to a situation of 'different dreams'.

This suggests that corporate CEOs tend to misunderstand the needs and sentiment of the Yeouido market. CEO Lee pointed out that a corporate attitude of only delivering what they want to say can exacerbate investor disappointment.

CEO Lee Kwon-hee diagnosed that many CEOs tend to be trapped in their own world rather than making efforts to understand investors' needs. He pointed out that focusing on internal corporate logic rather than grasping what market investors want is a problem.

He also emphasized the absence of staff who accurately inform CEOs about investors' sentiments or market interests. CEO Lee added that even reading Yeouido reports could sufficiently gauge market sentiment, yet access and utilization of such information are inadequate.

CEO Lee stated that major indices recorded positive returns in August, with KOSPI rising 3.4%, S&P 500 in the 2% range, and Nasdaq 3.9%. He explained that while the overall rise in Korean and U.S. stock markets was similar, investors' actual perception differed.

The domestic market caused psychological difficulties for investors due to high volatility, whereas the U.S. market showed limited declines of less than 1%. This suggests that index gains alone cannot fully capture market actual movements and investor sentiment.

Lee Kwon-hee explained the impact of former President Donald Trump's strong remarks on the Korean stock market after the close of the U.S. market. He pointed out that Trump's statements caused night futures to fall further, leading to a ripple effect of declines in the Korean market.

He analyzed that the Korean market is highly susceptible to U.S. market volatility, and risks arising during U.S. off-hours tend to transfer directly to the Korean stock market. This demonstrates the reality that the Korean market cannot help but react sensitively to U.S. political issues.

CEO Lee Kwon-hee analyzed that the Korean stock market is currently dominated by foreign investors, with no opposing force. Individual investors lack investment capacity, and institutional investors are shifting to ETF selling.

In particular, financial investment volumes are triggering program selling, increasing downward pressure on the market. This situation allows foreign investors to lead the market, indicating a weakening of domestic investment players.

Ultimately, CEO Lee's diagnosis is that without a force to balance the market, it will inevitably follow the direction set by foreign investors.

CEO Lee Kwon-hee cited the approximately ₩160 trillion worth of individual stock held above 2700 KOSPI points as one of the fundamental reasons it is difficult for the index to rise. He analyzed that there is currently no force in the market capable of absorbing this massive selling pressure and forcibly pushing the index up.

Foreign investors have no reason to forcibly raise the index, and the heavy burden of individual investors' holdings acts as a factor making index gains difficult.

CEO Lee emphasized that KOSPI's current PER (Price-to-Earnings Ratio) has fallen to 5.1x, indicating an extremely undervalued state. He noted that in the past, a PER below 7x would lead to a strong rebound, but now the market shows no reaction.

He analyzed this is because the market deeply distrusts corporate guidance. The current undervaluation even raises concerns that the index could fall further below 5x, showing a very subdued investor sentiment.

CEO Lee explained that this situation reflects market characteristics distinctly different from the past.

Lee Kwon-hee mentioned that stock markets in European countries like Germany and France are showing strength and maintaining an overall upward trend. He explained that this phenomenon of stock price increases occurring simultaneously with a high interest rate environment indicates a different market situation compared to the past.

The general upward trend in most countries' stock indices suggests that high interest rates do not necessarily mean a stock market decline. CEO Lee analyzed that this phenomenon reflects a paradigm shift in the market.

CEO Lee diagnosed that the era of low interest rates and massive liquidity supply that lasted for a long time after 2008 has ended, and the market is now shifting to an investment-driven phase. In the past low interest rate era, U.S. companies focused on share buybacks and dividends, and the market was driven by liquidity.

However, he explained that now, with higher borrowing costs, companies are shifting to a cycle of securing growth engines through investment. CEO Lee added that while some argue inflation is due to excessive liquidity, the current market is dominated by companies' active investment activities.

Lee Kwon-hee explained the phenomenon of companies actively raising capital for investment despite high interest rates. He specifically mentioned that cloud companies are not stopping investments even while borrowing money at high interest rates, almost 10% to 12%.

This is because they can expect returns exceeding their initial investment within a year. CEO Lee analyzed that AI data center investment is acting as a key driver of economic growth, and these investment activities are propelling the economy forward.

CEO Lee attributed the rise in European stock markets to defense and infrastructure investments. As the U.S. security umbrella weakens, European countries are increasing defense spending to strengthen their own security, accelerating defense and infrastructure investments.

He also mentioned active investment in physical infrastructure, such as road refurbishment for tank movement. Thus, Europe is distinguished by driving economic growth through large-scale investments in traditional industrial sectors rather than new technologies like AI.

Lee Kwon-hee analyzed that in most countries outside the U.S., governments are becoming the primary investors, emphasizing the rise of 'state capitalism'. There's a growing trend of increasing government budget support in key sectors like defense and the robot industry.

In contrast, the U.S. encourages corporate investment through deregulation rather than direct investment. This shift indicates that the role of the state is becoming increasingly important in the global economy.

CEO Lee argued that rising interest rates do not necessarily lead to a stock market crash because economic growth surpasses the interest rate increase. He mentioned that even with interest rates around 4.5% in the past, stock prices rose despite market concerns.

He analyzed that the Nasdaq did not crash during periods of rising interest rates because it was supported by growth in new industrial sectors like AI. CEO Lee emphasized that high interest rates are a product of the economy normalizing, and if accompanied by growth, they do not pose a significant threat to the stock market.

Lee Kwon-hee interpreted the current high interest rate situation as a sign of economic normalization. He explained that the economy had operated in an abnormal state of low interest rates for the past 20 years, and it is actually a normal economic cycle for interest rates to rise as the economy improves.

High demand for borrowing money to invest signifies an active economy entering a boom period. CEO Lee added that considering the GDP growth rates of the U.S. and Korea, the current interest rate level is within a normal economic range.

He emphasized that while there is vague anxiety about high interest rates due to a long period of low rates, this should be seen as the economy returning to its original equilibrium.

CEO Lee stated that while some market concerns have been raised regarding Oracle's management and debt situation, he believes Oracle will not fail. He expects positive results from Oracle's upcoming earnings announcement, as the company expands its AI-related business.

He emphasized that Oracle's fundamentals remain strong, suggesting a potential for 10% growth. He highlighted Oracle's crucial role at the far end of hyperscalers, adding that he is more concerned about some Korean companies than Oracle.

Lee Kwon-hee emphasized that the liquidity-driven market environment that persisted for the past 20 years has ended, and the investment paradigm has now changed. He argued that a new investment cycle, driven by AI and new industry growth, has arrived, and investors should forget past experiences of market rallies due to liquidity and focus on this new cycle.

CEO Lee added that understanding this change and establishing new investment strategies is crucial. He explained that investment should no longer rely solely on liquidity supply but should focus on a market driven by companies' actual investments and growth.

CEO Lee recommended a wait-and-see approach for market response until mid-September. He emphasized that the Clarity Act on the 15th and the FOMC (Federal Open Market Committee) results on the 16th are scheduled, making this period a potential turning point for the market.

He anticipated that a dull sideways market is likely to unfold until these events, advising against aggressive investments. CEO Lee colorfully remarked, “Until the 15th, it’s probably going to be a bit of a boring market. It might be better to do nothing and just go on a trip to Japan.”

He advised investors to closely monitor market trends during this period and formulate response strategies based on the outcomes of major announcements.