No Need to Worry About US Treasury Yields... Find Leading Stocks

At that time, not only in the US but also in Korea, a long-term low-interest rate trend was spreading, and securities firms were significantly expanding their bond prop divisions. In contrast, equity prop was tending to shrink.

As a result, securities firms shifted to reducing their bond prop size, similar to how they cut equity prop during the past financial crisis. Recently, there has been a trend of increasing equity prop again.

He sought to escape the short-term profit pressures of a securities firm and study various bonds with a longer perspective, managing assets from a long-term viewpoint. The expectation that prop investments by securities firms would incur long-term losses if the base rate bottomed out and rose also influenced his decision to move.

Bond investors shy away from risky asset investments as inflation levels remain high, while stock investors view the slowdown in inflation itself as a positive sign. Executive Director Sung Sang-hyun emphasized the importance of shifting from a bond-centric mindset to a stock market perspective.

Instead, he explained that unexpected declines happen when there is no market anxiety, similar to just before the financial crisis. He mentioned that the Korean market currently has individual funds tied up, so the inflow of foreign funds is a key variable determining the market's direction.

Executive Director Sung Sang-hyun predicted that AI demand has not yet fully begun and has the potential for even greater growth in the future. In particular, he saw that the memory semiconductor market would continue to see price increases due to persistent supply shortages. He judged that even if operating profit margins temporarily fall, as long as profits themselves remain high, it cannot be considered the end of the semiconductor cycle.

This suggests that what appeared to be merely a memory semiconductor supply shortage was, in fact, a capital shortage. As a result, a change is emerging in the bond market where big tech companies are becoming new capital raising entities.

The market interprets the increase in US Treasury supply as a liquidity crisis, but Executive Director Sung Sang-hyun pointed out that this is confusing the central bank's balance sheet reduction with commercial banks' creation of broad money. Commercial banks need to supply broad money through loans and bond purchases, and recently, large banks like JPMorgan are observed to be reducing cash and increasing loans. This is a factor that can alleviate liquidity pressure from increased Treasury supply.

This is similar to the financial repression method the US used to reduce debt in the 1940s-50s, a strategy that leaves long-term bond demand to the market through banking deregulation.

In the past, during the COVID-19 pandemic, Treasury bonds were excluded from SLR regulation calculations. If regulations are eased, banks can expand their loans and bond holdings relative to their capital. If large banks move preemptively, small and medium-sized banks are also likely to follow suit.

He aims to achieve long-term outperformance by identifying leading stocks, generating high returns during market upswings, and experiencing less decline during downturns. He stated that his goal is to provide investors with a compounding effect through this approach.

Executive Director Sung Sang-hyun named the factor model as the core strategy for finding leading stocks. He explained that the momentum factor has consistently generated the strongest returns in the long term. Among various factors such as value, momentum, quality, and growth, he prioritizes momentum, filtering stocks by distinguishing between short-term price momentum and long-term rank momentum.

The F-score is a checklist for evaluating a company's value, a stage that verifies whether a stock with good momentum has any financial problems. This is part of the process of making final investment decisions through a multi-factor model that combines momentum and quality.

Executive Director Sung Sang-hyun emphasized that in an operating strategy, the simplicity of operation is more important than the complexity of the model. While overseas models use more than 16 detailed factors, actual operation should be kept simple to avoid 'self-contradiction,' where one gets bogged down in complex models and makes judgment errors. Mechanical models only serve to identify candidate leading stocks; the final investment decision is ultimately made by a person.

AI can make suggestions, but it's not easy to accurately determine if the current market is in a slump using macro data. Market participants like prop traders consistently generate profits, and model-based investing is used as a tool to exclude subjective intuition.

Since this model does not merely pursue price appreciation, a spread of leading stocks to other companies, such as Hyundai Marine & Fire Insurance, has recently been observed. In April, Samsung Electro-Mechanics was also identified as a top-ranked stock by this model. This model aims to target the knee-to-waist section of the stock market, not the bottom.