September Rate Hike: Only Short-Term Shock to Stocks

Economist Kim Han-jin analyzed the technical rebound level of semiconductor stocks using the Fibonacci sequence. He presented a primary rebound target of 38.2% relative to the decline, stating that this level corresponds to 1.87 million won for SK Hynix and 260,000 won for Samsung Electronics.

He further projected that a 61.8% rebound could lead to SK Hynix reaching 2.3 million won and Samsung Electronics reaching 300,000 won.

In the Korean stock market, semiconductors account for 70% of profits, but only 50% of market capitalization, leading to supply and demand bottlenecks. Economist Kim analyzed that while U.S. big tech companies balance market cap and profit proportions through AI investments, the Korean semiconductor market faces resistance in achieving this balance.

However, an optimistic view on AI infrastructure investment was also presented. Trust is forming that AI infrastructure investment will ultimately lead to profits, which, in a long-term perspective, will support the sustainability of the AI industry.

Investments in AI models and the increase in Nvidia's data center revenue were mentioned as factors strengthening this trust. Data centers are key elements of AI infrastructure, and their revenue growth can be interpreted as an indicator of the tangible results of AI investment.

Therefore, despite the current supply and demand imbalance, the growth potential of the AI industry and investment confidence provide grounds for a positive long-term outlook for the Korean semiconductor market.

An analysis suggests that the essence of the stock market lies in the AI cycle, with macro variables playing only a supporting role. While AI has a short device cycle of 20-26 months, its influence is the core driver of the market.

Economist Kim explained that macro variables are unlikely to be the main culprits in collapsing the market, unless the Federal Reserve (Fed) raises interest rates by 50 basis points consecutively, as it did during the COVID-19 pandemic, an extreme scenario.

It was argued that there is no need to get bogged down in the daily barrage of macro news, and instead, one should focus on the essence of the market. Economist Kim believes that the current macro environment does not seem to deviate significantly from the market's core nature.

He added that observing whether economic trends and monetary policy diverge sharply is key, and it's important to see the big picture rather than reacting to short-term news fluctuations.

Opinions among Federal Reserve (Fed) members are sharply divided over whether to raise interest rates at the September Federal Open Market Committee (FOMC) meeting. Current strong employment, coupled with persistent inflation above target, provides grounds for hawkish members to advocate for a rate hike.

Conversely, the ongoing disinflationary trend and falling inflation expectations serve as reasons for dovish members to support a rate freeze. This situation suggests that the September FOMC decision will not be easy.

An analysis of the distribution of hawkish and dovish members within the Federal Reserve (Fed) committee concluded that doves hold the upper hand. Only three regional Federal Reserve bank presidents show hawkish tendencies, and the New York Fed President is classified as an ex officio dove.

Economist Kim classified Chairman Jerome Powell as dovish based on his past history of interest rate cuts, concluding that the Fed committee as a whole leans dovish.

A prediction was made that there is over a 70% chance of an interest rate hike being rejected at the September Federal Open Market Committee (FOMC). This is because if a 6-6 tie occurs in the Federal Reserve's (Fed) rate decision vote, it results in a rejection, meaning a freeze.

Economist Kim projected that a 7-5 vote in favor of a freeze is likely, considering the committee members' reputations, thus leaning towards an interest rate freeze in September.

Evidence emerged that the disinflationary trend is being maintained, with U.S. August wage growth recording 0.3%. Economist Kim Han-jin explained that if wage growth does not exceed 0.3%, the disinflationary trend can be considered to continue.

The analysis suggests that while employment is robust, wage growth is not steep, which could lead the Federal Reserve (Fed) to adjust the pace of interest rate hikes.

An analysis concluded that the key factor that collapses the market is not a temporary interest rate hike, but rather continuous and sharp increases. Economist Kim Han-jin judged that given the current trend of declining inflation, the probability of continuous hikes is very low.

Therefore, even if an interest rate hike is implemented in September, it is likely to be a temporary market shock and is unlikely to lead to a long-term stock market decline.

This suggests that the market will react more sensitively to the Federal Reserve's (Fed) long-term interest rate policy stance rather than a one-off rate hike.

It was diagnosed that former President Donald Trump's remarks pressuring interest rates lack logical grounds. Economist Kim Han-jin emphasized that Trump's statements stem from confusion regarding market interest rates and policy interest rates, and the only countermeasure is to 'ignore' them.

Trump's remarks on trade retaliation were also analyzed to have little actual impact on the market, as they are driven more by political motives than economic logic.

An analysis suggests that the essence of rising U.S. benchmark interest rates lies in economic prosperity. Economist Kim Han-jin explained that because the U.S. economy is growing above its potential growth rate, prices are rising, which naturally leads to pressure for interest rate hikes.

Current inflation is a phenomenon resulting from both monetary policy distortion and economic prosperity, which further demonstrates the strong fundamentals of the economy.

The expansion of the fiscal deficit and an increase in the term premium were identified as key reasons for the rise in U.S. market interest rates. Over the past six years, the balance of U.S. Treasury bonds surged from $10 trillion to $24 trillion, and the fiscal deficit as a percentage of GDP also expanded from 3% to 6%.

This situation compels bond investors to demand more premium for future uncertainties. Bond investors desire higher returns due to future uncertainties, which is a natural phenomenon determined by the market.

Therefore, it is crucial to understand that market interest rates are determined by a complex interplay of fiscal conditions and market risk perception, not simply by benchmark interest rates alone.

The possibility of adjusting the weighting of portfolio fees in September's inflation data was raised. Economist Kim Han-jin criticized that such an adjustment could temporarily distort inflation figures, and using this as a basis to raise interest rates in September would be like a comedy.

He believes that changing monetary policy based solely on temporary fluctuations in inflation figures is inappropriate, and decisions should be made cautiously based on long-term trends.

In the current market, the boundary between growth stocks and value stocks is blurring, suggesting that it's more appropriate to approach investment strategy by categorizing 'momentum stocks' and 'non-momentum stocks' instead. This indicates that momentum stocks, which reflect market trends and power, have become more important.

Economist Kim Han-jin proposed that a portfolio consisting of 30% cash, 30% momentum stocks, and 40% non-momentum stocks is desirable.

This strategy aims to prepare for market uncertainties, ride the market's leading forces, and simultaneously ensure stability. It involves maintaining a cash proportion to secure liquidity, pursuing returns with momentum stocks, and adding stability with non-momentum stocks.