Global Stock Market Unlikely to Rise for Now… Concerns of Exploding Long-Term Interest Rates Early Next Year

Kim Dong-ho, MBN Gold Manager, predicted that the global stock market will find it difficult to rise for the time being, given the current upward trend in long-term bond yields, the weakening yen, and deteriorating global macroeconomic variables. He stated, "For the time being, the global stock market is in a state where one cannot expect it to go up."

Manager Kim Dong-ho stated that further price increases for assets like Bitcoin are unlikely as long as interest rates continue to rise. He analyzed the current movements of virtual assets as a technical rebound, expecting limited upside if the trend of surging interest rates persists. The target for a technical rebound is estimated to be around $85,000, and he added that Bitcoin might not act as a safe haven but rather increase concerns about asset value depreciation. Manager Kim emphasized, "It's difficult to expect asset prices to rise while interest rates continue to increase. So, this is a technical rebound."

Manager Kim Dong-ho anticipates an explosive rise in US long-term bond yields starting early next year. He estimated that the critical period of financial instability would be after May-June next year. This trend is expected to accelerate as national debt and budget deficit issues worsen. He stated, "The timing I envision for the explosive rise in US long-term bond yields begins early next year, and the period when financial instability forms will be at least after May or June next year."

Currently, with increasing issuance of government bonds, the US national debt has hit an all-time high, and the fiscal deficit is also severe. With budget deficits expected to exceed $2 trillion for three consecutive years, government bond interest costs are skyrocketing. This exacerbates fiscal deterioration and adds upward pressure on long-term interest rates.

Furthermore, unlike the period of quantitative easing (QE) when the Federal Reserve purchased government bonds to inject liquidity into the market, it is currently absorbing market liquidity through quantitative tightening (QT). This, coupled with the absence of major government bond buyers, could further fuel the rise in long-term interest rates.

Due to these complex factors, there are concerns that US long-term interest rates could climb past 5-6% to the 7% range, potentially causing a greater shock than previous high-interest periods. Manager Kim Dong-ho explained the current situation, saying, "There's no money to pay the interest on government bonds right now. The budget deficit is unavoidable because government bonds are continuously being issued to cover the deficit."

Manager Kim Dong-ho presented a bond purchase strategy for retirement asset management. He advised that with the 10-year Treasury yield expected to reach 7.5% around late next year to early the year after, purchasing 30-year Treasury bonds near the interest rate peak would be an effective strategy. He emphasized that for now, with interest rates still rising, it's best to invest for short periods and hold cash (dollars) during this rising interest rate environment.

He urged attention to long-term bonds for the stability of retirement assets, explaining that purchasing 30-year bonds during high-interest periods can provide stable returns. Manager Kim stated, "For now, go short-term. Around late next year to early the year after, perhaps early 2028, I expect it to reach this level. That's when you should buy 30-year bonds."

This strategy involves securing liquidity through cash during rising interest rates and purchasing long-term bonds when interest rates peak to aim for capital gains from bond price appreciation when rates eventually fall.

Manager Kim Dong-ho warned investors to be cautious about ETF, ETN, or bond products recommended by bank tellers. He pointed out that products marketed aggressively by financial institutions might be unfavorable to investors. He said, "If your deposit matures at the bank, and they tell you to buy some ETF or ETN or bond, don't do it. They're just trying to take advantage of you, and when they're on a marketing drive, they sell all sorts of strange products."

Manager Kim emphasized the importance of consulting with external experts, not bank employees, to choose investment products that suit one's needs. He advised that financial institutions might sell products for their own profit, so investors must thoroughly verify information and make their own judgments.

Manager Kim Dong-ho explained that Japan transitioned into a chronic trade deficit nation following the Great East Japan Earthquake in 2011. Since the earthquake, Japan has consistently recorded an annual trade deficit of approximately 2 trillion yen (about 25 trillion won), a situation that continues to this day. Manager Kim stated, "They turned to a deficit from the Great East Japan Earthquake, continuously recording a trade deficit of about 2 trillion yen, which is about 25 trillion won in our currency. This has continued steadily since 2011, and we can see the deficit is still ongoing."

In the past, Japan accumulated foreign currency through trade surpluses and drove economic growth, but after the Great East Japan Earthquake, its trade balance deteriorated due to increased energy imports and changes in industrial structure. This trade deficit structure is closely related to the weakening yen and is analyzed as an indicator of overall structural changes in the Japanese economy.

The sustained trade deficit could impose long-term burdens on the Japanese economy, potentially affecting exchange rate volatility and national creditworthiness. Japan continues its efforts to improve this deficit structure through domestic demand revitalization and strengthening export competitiveness.

Manager Kim Dong-ho revealed that after SK Hynix announced its share buyback, other corporations concentrated over 1 trillion won in purchases over two days. He explained, "SK Hynix's share buyback, you see these 'other corporations' here? These are just general corporations. So, you can see they bought 1 trillion yesterday and 1.1 trillion today." This suggests that ordinary corporations are actively participating in SK Hynix's share buyback.

In contrast, pension funds showed varying trading trends by supply and demand entities, with a seven-day consecutive buying streak. Foreign investors took a selling position during the share buyback period, and institutions also continued to sell. This difference in supply and demand indicates that the impact of the share buyback on individual stock prices varies among different investor groups.

SK Hynix is undertaking a share buyback of 2 million shares in total, which is interpreted as an effort to stabilize stock prices and enhance shareholder value. However, the actual buyers and the scale of their purchases can have different impacts on the market, especially with large-scale purchases from other corporations potentially acting as a short-term supply and demand factor.

Manager Kim Dong-ho strongly criticized domestic pension funds for repeatedly exhibiting a typical 'buying high and selling low' behavior, purchasing near market highs and selling at the bottom. He pointed out, "Among all pension funds worldwide, South Korea's pension fund is probably one of the worst. When the market goes up and reaches its peak, they should sell some. Why don't they sell? They should sell there. But they continuously sell when it hits rock bottom. The reason it hits rock bottom is because the pension fund sells here."

This counterproductive investment not only negatively impacts the profitability of pension funds but is also criticized for hindering market efficiency. Although pension funds should pursue stable returns from a long-term perspective, they often get caught up in short-term market trends, thereby increasing their losses.

Manager Kim criticized the lack of investment strategy by pension funds, emphasizing the need for more rational and professional investment decisions. The criticism of recording some of the lowest returns among global pension funds can be interpreted as a call for fundamental reflection on the operational methods of domestic pension funds.

Manager Kim Dong-ho predicted that the stock market would continue to move within a box range until November and December. He stated, "This won't happen immediately. The market will continue in a box range until November and December," adding that SK Hynix's share buyback is scheduled until November 18, and there's a possibility of Samsung Electronics announcing its own share buyback.

He analyzed that the decision by pension funds and investment trusts to shift to selling would be a crucial variable in preventing a market collapse within this box range. While large-cap companies' share buybacks can provide downside rigidity, a continued selling spree by institutional investors could increase downward pressure.

Manager Kim Dong-ho predicted the KOSPI index peak at 7,200, diagnosing that it has reached the upper bound of its current box range. He stated, "The KOSPI index, this spot is the peak. The upper bound of the box range. Last time it was 7,200," adding that if the index falls, it might drop to 5,500 initially before rebounding. He explained, "Initially, if it goes down this much, it will rebound again. It would be around 5,500."

This index forecast reflects the high uncertainty in the current market, suggesting that investors should prepare for a potential index decline. Particularly, with 7,200 perceived as the peak, considering a drop to 5,500 implies the need for a conservative market approach.

Manager Kim Dong-ho warned that bio and secondary battery related stocks are vulnerable to rising interest rates. These sectors are classified as interest-rate sensitive, explaining that their stock prices are significantly negatively affected when interest rates rise. He stated, "Bio and secondary battery stocks, which fell sharply today, have something in common: they are interest-rate sensitive. So, they're poison when interest rates rise. They are vulnerable to interest rates."

With US long-term interest rates expected to enter a build-up phase, with a significant rise starting from January 2025, the possibility of a sharp decline in these interest-rate sensitive stocks increases. In particular, biotech companies often rely on borrowing for R&D funding, and the secondary battery industry also needs large-scale capital for facility investments, thus facing increased financial burden in a high-interest rate environment.

He also mentioned that loss-making robot and aerospace stocks are likely to experience a co-decline during rising interest rates. These companies often attract investments based on future growth potential, so rising interest rates can lead to increased financing costs, adversely affecting profitability.

Therefore, Manager Kim advised investors to exercise extreme caution when investing in these interest-rate sensitive stocks as interest rates begin to rise. A cautious approach to related sectors is necessary, especially as the rising interest rate trend is expected to continue until next year.

Manager Kim Dong-ho strongly advised against investing in bio stocks until the end of next year. He emphasized, "Don't touch bio stocks until the end of next year, when interest rates are rising," explaining that even financially sound bio companies like Alteogen are likely to fall in a rising interest rate environment.

When interest rates rise, corporate demand for funds skyrockets, and bio companies, which often have high debt reliance, face increased financing costs, leading to greater financial risk. This, in turn, can lead to a decline in stock prices. The bio industry requires long-term R&D and massive capital investment, making it highly sensitive to interest rate changes.

Therefore, Manager Kim urged investors to refrain from investing in bio stocks during the anticipated period of rising interest rates and to approach the market from a more conservative perspective. In the current market conditions, investors need to carefully analyze the impact of interest rate hikes on each industry and focus on risk management.

Manager Kim Dong-ho analyzed that former President Trump's recent remarks concerning inter-Korean economic cooperation stocks are likely to be mere 'lip service.' He stated, "Recently, Trump mentioned meeting Jung-eun again, but there was no response. The answer was already clear. It's just lip service," emphasizing that the current situation differs from that of 2018.

While there was substantive progress, such as US-North Korea summits, in 2018, the current remarks are seen as closer to Trump's showmanship, with little chance of expanding into a major theme. Given the complexity of US-North Korea relations and the difficulties of actual negotiations, Trump's statements are unlikely to immediately translate into investment opportunities.

Therefore, he advised investors not to react impulsively to news about inter-Korean economic cooperation stocks but to carefully observe whether there are actual policy changes or concrete movements. He added that it's important to approach with caution from a long-term perspective rather than jumping on short-term thematic movements.

Manager Kim Dong-ho stated that Samsung Electronics plans to implement a cash dividend of approximately 30 trillion won, including regular quarterly dividends, in Q3 2026. He added that specific details of the share buyback and dividend size will be finalized at a board meeting in late October 2026. He said, "In Q3 2026, including regular quarterly dividends, they plan to implement a cash dividend of around 30 trillion won, and the specific details will be finalized at the board meeting in late October 2026."

This shareholder return plan is also expected to include a significant share buyback. However, even with a special dividend, the dividend yield is projected to remain between 2.5% and 3%, which may be insufficient to significantly drive stock price increases. Investors will need to carefully evaluate the impact of Samsung Electronics' shareholder return policy on its stock price.

Manager Kim Dong-ho predicted that Samsung Electronics' share buyback would commence after its announcement in late October and following the US midterm elections in November. This analysis suggests it will be executed when the US midterm elections and the direction of long-term Treasury yields are resolved. He commented, "The share buyback will start in October. And rather than selling on the news, this much was already expected."

The share buyback is expected to last for approximately three months after the announcement and is likely to be implemented through a market-neutral, staggered buying approach rather than a method that induces a sharp stock price surge. This is interpreted as Samsung Electronics' strategy to enhance shareholder value while minimizing market impact. Investors should focus on long-term corporate value changes rather than the short-term impact of the share buyback on the market.

Manager Kim Dong-ho stated that following SK Hynix's share buyback from August 20 to October 18, Samsung Electronics would take over with its own share buyback from late October to January next year. He said, "From August 20, Hynix bought back its shares until October 18, and now Samsung Electronics will buy back its shares."

These consecutive share buybacks by major semiconductor companies are expected to generate an average daily buying effect of approximately 600 billion won, thereby supporting the stock market's bottom for the next six months. This analysis suggests that share buybacks focused on large-cap semiconductor stocks could act as a mechanism to defend against an overall market decline.

Therefore, during this period, rather than a sharp market decline, a continuation of movements within a box range is likely, with large-cap semiconductor stocks expected to serve as a market anchor. Investors should formulate their investment strategies considering these supply and demand factors.

Manager Kim Dong-ho explained that mechanical buying methods, such as '10-part staggered purchases,' are applied to minimize the impact of share buybacks on stock prices. He stated, "They bought once per minute, which is called a 10-part staggered purchase. They make 360 purchases over 360 minutes."

This method involves making equal, staggered purchases 360 times over 360 minutes in a day, meaning purchases are executed mechanically regardless of price to avoid impacting the market by concentrating purchases at specific price points. This is interpreted as companies' effort to achieve the original purpose of share buybacks—enhancing shareholder value—while minimizing market disruption. Investors need to understand that such share buyback methods have a greater impact on long-term corporate value than on short-term stock price fluctuations.