September 3rd: Navigating Sector Rotation Amidst Lack of Supply and Demand

Around 2 PM on September 3rd, the domestic stock market experienced a sudden downturn. Lee Kwon-hee analyzed that the simultaneous drop in U.S. Nasdaq 100 futures and the erroneous report of an attack on a U.S. Air Force base in Kuwait had an impact. With former President Trump's remarks warning of retaliation, the vulnerability of a market with thin supply and demand was exposed, described as "the market is too sensitive and delicate right now."

When the news of the attack first broke, it caused a significant shock to the market. However, after reports emerged that it was not Iran's doing, the market regained some stability. This misinformation incident served as an example of how sensitive the current market is to even small external variables.

Experts diagnose that the current market, lacking buying interest, is highly sensitive to macro variables such as rising U.S. Treasury yields, and emphasize the need to prepare for similar unexpected issues in the future.

One of the main reasons for the sharp decline at 2 PM was the reversal in institutional investors' selling. Lee Kwon-hee explained, "Institutions switched to selling at that exact moment, at 2 PM, and dumped a tremendous amount of stock." This, coupled with foreign investors' futures selling, led to a massive outflow of program trading volume that moves the KOSPI index.

It appears that mechanical selling, rather than individual investor trading, largely contributed to the supply and demand imbalance. In a market lacking buying participants, such mechanical selling exacerbated the market's decline.

Even amidst the market plunge, some undervalued sectors showed significant movements. Lee Kwon-hee noted, "Construction machinery rose about 8.5% today, albeit from a low base, with meaningful trading volume," also highlighting the movement of chemical stocks like Lotte Chemical, which are at their bottom.

In contrast, the biotechnology sector showed weakness, unlike the U.S. market. This suggests that the domestic market experienced short-term sector rotation into specific undervalued sectors amidst overall supply and demand instability.

Kim Jang-yeol pointed out the market's vulnerability, stating, "When someone pushes hard, and the supply and demand are pushed, it becomes clear there aren't many people to fight back, which might make people think they need to quickly escape those vulnerable areas during the next rebound." This lack of supply and demand further fuels market decline.

Consequently, Kim Jang-yeol emphasized the need for a barbell strategy, combining financial stocks and AI semiconductor-related stocks. Financial stocks are expected to benefit from interest rate hikes, while AI semiconductors possess long-term growth potential.

Experts anticipate continued market volatility and sector rotation until the FOMC (Federal Open Market Committee) meeting, advising flexible portfolio strategies as crucial.

During the recent market rebound, the financial sector showed a significantly stronger performance than other sectors. Lee Kwon-hee stated, "The fact that the financial sector was the strongest among others during the rebound suggests a high probability that this trend will continue." This aligns with the overall market expectation that interest rates will remain high.

A high-interest rate environment can lead to improved profitability for financial companies like banks and insurance firms, drawing investor attention. Fund managers are also tending to shift capital to the financial sector, unable to find suitable alternatives in the current market.

As a result, analyses suggest that the financial sector's rebound could extend beyond the short term into a medium-to-long-term uptrend. Bank stocks, in particular, are expected to maintain a robust performance based on stable dividends and earnings.

Ultimately, in a situation of increasing market uncertainty, the financial sector is being evaluated as a stable investment option with potential for a trend-driven ascent.

Backwardation was observed in the futures market. Lee Kwon-hee explained, "The KOSPI 200 closing price was 1032.8, but the last traded price was 1030.45, indicating backwardation." Backwardation is a phenomenon where futures prices are lower than spot prices, serving as one indicator of market expectation for a decline.

Especially in the futures market approaching expiry, it is necessary to closely examine the closing auction flow. This provides important clues for understanding short-term supply and demand imbalances and investor sentiment in the market.

Doosan Enerbility received high marks for its core nuclear power equipment manufacturing technology, while Hyundai E&C was recognized for its nuclear power plant construction and engineering capabilities. BH is gaining attention as a supplier of nuclear power-related components and systems.

The release of this report suggests the possibility of continued rallies for nuclear power-related stocks. Driven by the government's nuclear power policy stance and the expansion of the global nuclear power market, the upward momentum for these companies' stock prices is expected to be maintained.

Currently, there is a distinct lack of clear momentum to drive the market higher. Kim Jang-yeol pointed out, "There's no momentum right now. What is there? Nothing. There's only one thing: when Micron's earnings come out." With the Nvidia and Broadcom issues having passed, the market has lost its driving force.

Micron's Q3 earnings announcement is scheduled for October 1st, so market cautiousness is expected to deepen until then. With major economic events such as the FOMC meeting before Chuseok, market volatility could further increase.

In this situation, large semiconductor stocks like Samsung Electronics and Hynix are unlikely to rebound significantly in the short term. Therefore, the importance of a sector rotation strategy is further highlighted, and individual investors are advised to avoid over-investing and approach with caution.

A lack of momentum slows down the overall market movement and can intensify capital concentration in specific sectors. Investors should focus more on individual companies' earnings and growth potential at this time.

Kim Jang-yeol recommended adjusting semiconductor weighting and securing cash as a portfolio response strategy in the current market. He advised, "AI group, including AI semiconductors, at half or 30-40%... if you have 30% cash, then you divide the remaining 70% between AI and non-AI," suggesting the need to maintain exposure to semiconductor stocks while adjusting their proportion.

This is a strategy to diversify risk in a volatile market and seize future investment opportunities. In particular, diversified investment into stable, large sectors such as finance can be considered.

For individual investors who find aggressive trading difficult, securing 20-30% cash was presented as a standard response. This can be an effective strategy to prepare for sudden market fluctuations and capitalize on buying opportunities at lows.

Selling after a sharp market decline can solidify losses, so careful judgment is required.

Within the financial sector, bank stocks were identified as the most preferred investment. Lee Kwon-hee stated, "Looking at recent analyst opinions, the priority is 1st for banks, then non-life insurance, then life insurance, and finally securities. Bank stocks are the most comfortable." This reflects expectations for banks' stable performance and dividend yields in the current high-interest rate environment.

Securities stocks were ranked lower in investment priority due to exposure to factors deteriorating sentiment, such as political issues concerning Mirae Asset Securities. In contrast, major bank stocks like KB Financial are drawing attention with potential for further gains after breaking out of their trading range.

The government's 'Value-up' policy could also positively impact financial stocks. With expectations of increased shareholder returns, such as dividend expansion, the appeal of financial stocks, especially bank stocks, is expected to further stand out.

Regarding allegations of counterfeit APR products, APR clarified that the product lot numbers in question had no official distribution history. With the Singapore Health Sciences Authority also reporting no carcinogens detected, the controversy is expected to subside. Concurrently, the pre-registration of the Solidigm ETF was interpreted as evidence that the market highly values Solidigm's corporate worth.

Kim Jang-yeol remarked, "If Solidigm wasn't going to be profitable, why would these people, who have a nose for money, bother with such unnecessary things? I think its hidden value is being revealed, so fundamentally, it's good," highlighting Solidigm's potential.

The market re-evaluation of Solidigm's value will be a factor in enhancing the company's growth momentum and investment appeal in the future. In particular, the ETF pre-registration demonstrates focused interest from institutional investors, which is likely to lead to stock price increases.

Consequently, the APR controversy has been resolved, and Solidigm is receiving a positive outlook in the market with fundamentally strong evaluations.

The potential impact on domestic companies from U.S. demands for semiconductor tariffs was reviewed. Kim Jang-yeol stated, "This is about producing and building factories in the U.S. if you want benefits, but it has no particular impact. It's not a new story, is it?" drawing a line, implying that demands for U.S. production and factory construction are not novel.

Currently, Samsung Electronics is building a factory in Taylor, and Hynix is also planning investments in packaging facilities. However, the exact conditions the U.S. will demand are not yet known, so the impact on companies could vary depending on specific negotiation terms.

Experts anticipate that while tariff imposition risks could heighten short-term market concerns, companies will likely adapt to their U.S. local investment plans in the long run.

Ultimately, the risk of U.S. semiconductor tariff imposition remains highly uncertain, and companies are expected to closely monitor specific policy announcements from the U.S. government and prepare their response strategies.

This is because issues such as factory construction and operation dates are expected after 2030, requiring a long-term perspective. There is little direct correlation with the current semiconductor supply and demand cycle.

Therefore, confirming concrete implementation plans and timelines should take precedence over political interpretations. Companies are considering U.S. investments from a long-term perspective, and the possibility of short-term supply instability is low, according to experts' consensus.

In conclusion, U.S. investment demands may change the long-term picture of the semiconductor market, but they are not expected to have an immediate impact on the current supply and demand situation.

Lee Kwon-hee pointed out, "Yesterday, nearly 300,000 shares were shorted, and today, 190,000 shares. This is more than the usual volume, which is typically around 40,000-50,000, or at most 100,000 shares. There's quite a lot of accumulated short interest." The accumulated short interest, amounting to 2 million shares this month and a total of 9 million shares since the beginning of the year, is a significant burden on the stock price increase.

Daily short selling volume has also increased significantly in recent days compared to usual, adding to downward pressure on the stock price. This is not only an issue for Alteogen individually but also coincides with the overall weakness in the KOSDAQ market.

Uncertainties in the overall market, such as the postponement of the KOSDAQ listing upgrade policy, are also negatively impacting large KOSDAQ stocks like Alteogen. In the KOSDAQ market, with its thin supply and demand, increased short selling volume can further amplify stock price volatility.

Therefore, for Alteogen's stock price to recover, a reduction in short selling pressure and an overall improvement in KOSDAQ market supply and demand must precede.

Macro uncertainties, such as the possibility of interest rate hikes based on U.S. employment data and CPI (Consumer Price Index) results, could lead to market slowdowns and a wait-and-see attitude. In such a situation, investors must flexibly mix their portfolios to respond.

Ultimately, while the market will experience short-term adjustments and volatility, the prevailing view is that it will trend upward, driven by long-term growth momentum and improved corporate earnings. Therefore, investors are advised to focus on individual companies' fundamentals while monitoring macro variables when constructing their portfolios.