Korean Stock Market Stalls, Key is 'Sustainability'

Expert Lee Hyuk-jin analyzed that AGI (Artificial General Intelligence) can be considered achieved only when the probability of performing complex tasks within a PC exceeds 50%, a level not yet reached. However, he added that AI's error rate has decreased to 2.4%, significantly increasing companies' economic efficiency. Therefore, regardless of AGI attainment, the impact of AI technological development on industries is already a reality.

Regarding the end of white-collar jobs, expert Lee Hyuk-jin predicted it would be next year, sooner than the general 3-5 year forecast. He cited that data centers equipped with 'Vera Rubin' chips are just starting to ship, and the alignment of chips and AI models is expected in the first half of next year. He projected that this change would lead companies to adopt a new efficiency metric: ROT (Return on Time).

Expert Lee Hyuk-jin analyzed that the growth rate of job postings by sector has completely reversed. Sectors where AI is difficult to replace, such as mining, retail, construction, trade, and transportation, are increasing employment. In contrast, professional sectors like insurance, finance, specialized professions, and real estate have seen a 40% decrease in postings compared to the same period last year. He predicted that this reduction in high-wage professional employment would ultimately contribute to inflation stabilization.

Expert Lee Hyuk-jin pointed out that it is abnormal for the Korean stock market to have an ROE (Return on Equity) exceeding 25% while its PBR (Price-to-Book Ratio) remains at around 1.5 times. This contrasts with countries like the UK, Taiwan, and the US, where ROEs above 15% typically correspond to PBRs over two times. He attributed this phenomenon primarily to 'sustainability,' explaining that a high PBR is difficult to justify without guaranteed future profit sustainability. His analysis suggests investors are demanding confidence in long-term growth drivers rather than just current strong performance.

Regarding the future of semiconductor valuation, expert Lee Hyuk-jin raised market doubts about whether an operating profit margin of 80% can be sustained beyond 2027. He mentioned the potential for profit margin decline with capacity expansion, along with the entry of Chinese memory manufacturers like Yangtze Memory and Changxin Memory, as significant variables. With China currently accounting for 25% of the overall AI semiconductor market, he predicted that China's expanding influence could add unpredictable volatility to the Korean semiconductor industry.

Expert Lee Hyuk-jin explained that revenue for semiconductor companies focused on HBM (High Bandwidth Memory) or long-term supply contracts is largely predictable with little volatility. He emphasized that the two key variables determining profitability are 'yield' and 'exchange rate.' He analyzed that if the exchange rate falls to 1,000 won, the upside for profits could be limited, and that companies will react more sensitively to changes in yield and exchange rates than to fixed contract revenues.

Expert Lee Hyuk-jin acknowledged that it is unrealistic to prevent the expansion of Chinese semiconductor companies. He explained that as China's self-sufficiency in equipment increases, blocking equipment exports from Korea to China is a difficult choice, which could ultimately lead to concerns about oversupply. Therefore, he emphasized that for Korean semiconductor companies, maintaining a consistent gap in technological difficulty, rather than trying to prevent China's expansion, is the only survival strategy.

Expert Lee Hyuk-jin stated that current HBM market share is SK Hynix at 50% and Samsung Electronics at 33%. However, he predicted that Samsung Electronics' HBM share would significantly increase next year, making a reversal highly likely. He analyzed that Samsung Electronics would substantially increase its HBM share next year, regardless of its stock price, which would greatly contribute to improved profit margins along with increased foundry utilization.

Expert Lee Hyuk-jin proposed investment strategies, focusing on key macroeconomic events in September. He specifically stated that the expansion of the U.S. Treasury's buyback program would fully commence on September 9. He also anticipated that the CPI (Consumer Price Index) and FOMC (Federal Open Market Committee) results, to be announced after September 10, would significantly impact the market. He advised that a strategy of adjusting portfolio weighting and securing cash before Chuseok, then re-entering the market after the holiday, would be effective.

Expert Lee Hyuk-jin identified the planned US-China summit on September 24 as a key risk for the memory semiconductor sector. He emphasized that if executives from Chinese semiconductor companies, such as Changxin Memory, accompany President Xi Jinping on his plane, it should be taken as an immediate sell signal. He warned that investor sentiment could rapidly deteriorate depending on the outcome of semiconductor-related discussions between the US and China, thus requiring proactive portfolio weight reduction with this possibility in mind.

Expert Lee Hyuk-jin sees a high probability of a technical rebound in the semiconductor sector, but emphasized the need for a flexible portfolio response when previous highs are reached. Citing similarities between the 2016 memory cycle and the current situation, he advised that when major semiconductor companies like Samsung Electronics reach their previous highs, market conditions should be thoroughly analyzed and strategies readjusted. This underscores the importance of not being complacent with short-term rebounds and managing risk from a long-term perspective.

Expert Lee Hyuk-jin analyzed that this year, the construction stock market is shifting from a housing-centric focus to non-residential orders. Non-residential orders refer to the value of industrial facility contracts, such as factories, data centers, and memory semiconductor plants, rather than residential buildings. This shift leads to an increased proportion of B2B sales, which are less sensitive to interest rates, offering a new perspective for construction stock investment strategies.

Regarding investment strategies for the materials, components, and equipment (Sobu-jang) sector, expert Lee Hyuk-jin suggested using ETFs (Exchange Traded Funds) to overcome the difficulty of visiting individual companies. He explained that there is a strong correlation between overseas equipment capital expenditure indices and the domestic Sobu-jang industry, allowing investors to enjoy returns through Sobu-jang ETFs without needing individual visits.

Expert Lee Hyuk-jin analyzed the potential impact of the U.S. election results on data center and AI-related stocks. He stated that the House is currently Democratic-leaning and the Senate is 50-50, warning that if data center construction is delayed due to Democratic opposition, it could adversely affect related industries. While data center construction may not be completely halted, the delay itself could negatively impact investor sentiment, making the execution of energy and data center projects a critical factor to watch.

Expert Lee Hyuk-jin diagnosed that the 2nd battery market is experiencing a deepening decoupling of performance between electric vehicle batteries and energy storage systems (ESS). Companies with a high proportion of ESS sales, such as Samsung SDI, tend to show relative strength within the 2nd battery sector. This stems from the characteristic of ESS not using ternary batteries and will be an important differentiating factor in analyzing 2nd battery company performance going forward.

Expert Lee Hyuk-jin analyzed that a seasonal pattern exists in the IT large-cap market around the year-end and beginning of the year. When the trading volume share of Samsung Electronics and SK Hynix decreases at year-end, Samsung Electro-Mechanics begins to rise, and when Samsung Electronics and SK Hynix are in a lull at the beginning of the year, Samsung Electro-Mechanics tends to rise significantly. He added that this pattern is a combined result of tax-avoidance selling and thematic trends at the start of the year, and that when Samsung Electro-Mechanics rises first, LG Electronics tends to follow.