US-China Military Clashes, Rising Oil Prices… Korean Stock Market on 'Red Alert'

The stock market around the Chuseok holiday is emerging as a major issue. October and November are expected to have a higher probability of rising compared to September. There is particular interest in Samsung Electronics, with its semiconductor division surging 209% to an all-time high. Samsung Electronics and SK Hynix's share buybacks are also continuing, indicating that October and November are the most favorable periods. This can be seen as a long-term blueprint to solidify their No. 1 position in the HBM sector, though the recent market situation has been somewhat challenging.

On September 2, the day before the recording date of September 3, the KOSPI stock market plunged 3.9%, falling below 6,600 and closing at the 6,500 level. The reasons for this decline are analyzed to be rising oil prices due to escalating military clashes between the US and Iran, and rising long-term government bond yields. On September 3, the KOSPI briefly fell below 6,500 after news that Iran attacked a US military base in Kuwait, but recovered by the end of the trading session. Rising oil prices stimulate inflation, which in turn leads to inflation concerns, increasing pressure for interest rate hikes.

Concerns about interest rate hikes are growing, creating a vicious cycle and leading to unfavorable stock market trends. In particular, the Philadelphia Semiconductor Index falling for two consecutive weeks is cited as a direct cause of the stock price decline. Looking at the supply and demand on September 2, foreigners sold 2.4 trillion won and institutions also sold 2.4 trillion won, but individual investors buying 3.2 trillion won were insufficient to absorb this volume. Most of the top 30 market capitalization stocks showed red, leading the decline. Amidst this trend, there is a noteworthy point.

Amidst this external uncertainty, Samsung Electronics and SK Hynix's share purchases supported the index's downward rigidity, propping up the index. Despite continuous share buybacks, they were insufficient to offset external negative factors like surging oil prices and rising 10-year and 30-year government bond yields. Moving forward, there are three main variables that will affect the stock market around the Chuseok holiday. The first is the outcome of the FOMC meeting. Recently, hawkish remarks have been pouring out, adding justification for rising oil prices and interest rate hikes.

Attention is focused on whether the FOMC will make hawkish remarks and implement an interest rate hike. The second variable is the Chuseok holiday in late September. If geopolitical risks between the US and Iran continue, uncertainty in the Middle East during the Chuseok holiday could increase, expanding stock market volatility. Indices dislike volatility the most, so it is necessary to monitor the situation during the Chuseok holiday. The third is the US midterm elections, scheduled for November, approximately two months away.

Since 1980, in years with US midterm elections, the average returns for KOSPI and S&P 500 have been negative, particularly in September. However, October and November had a higher probability of rising compared to September. Therefore, rather than interpreting the current September market decline solely as a seasonal factor, it is better to view it as a period of rest, considering the three variables mentioned earlier. It is important to note that the recent decline in our stock market is not due to a deterioration in corporate value but rather to external factors such as oil prices and interest rates.

The recent release of August export figures, showing a 209% surge in the semiconductor sector to an all-time high, and the continued share buybacks by Samsung Electronics and SK Hynix, provide great comfort to the market. The recent sharp decline was due to external factors such as oil prices, interest rates, and Middle East risks, not corporate earnings. Therefore, it is crucial to respond to the September FOMC and Chuseok holiday without cash or leverage. Since October and November are seasonally the most favorable periods, it is advisable to formulate a response strategy accordingly.

On August 21, Samsung Electronics' board of directors announced a shareholder return plan of 90 to 110 trillion won. This is approximately five times the 20 trillion won announced in 2020, making it the largest in history. However, the market reaction was the exact opposite. Despite many investors expecting a stock price rise on August 24 after the announcement, Samsung Electronics' stock plunged 8.8%. The stock, which had risen on anticipation, collapsed in just one day. There are three key points explaining this outcome.

The first reason for the negative market reaction after Samsung Electronics' shareholder return announcement was the discrepancy with market expectations. The market expected at least 150 trillion won in share buybacks and cancellations, but the actual announced scale was 90 to 110 trillion won, lower than market expectations. The second and most decisive reason was the exclusion of share buybacks and cancellations from this announcement. While a 30 trillion won dividend for the third quarter and 15 trillion won for employee compensation were confirmed, the decision on 60 to 80 trillion won for share buybacks and cancellations was postponed to the board meeting next January. This delivered a significant shock to the market.

The decision to postpone the 60 to 80 trillion won share buyback and cancellation until next January delivered a significant shock to the market. The third reason is that this selling spread across the entire KOSPI, dragging down SK Hynix and causing a general decline in the index. No matter how large the historical shareholder return announcement was, the market had even higher expectations, and because these expectations were not met, a 'sell on news' scenario unfolded. This shows that the issue was not the scale itself, but rather the difference from market expectations.

The market had higher expectations, and because those expectations were not met, a 'sell on news' scenario unfolded this time. Samsung Electronics' stock should be viewed from two perspectives: one is short-term disappointment selling, and the other is its long-term direction. The short-term stock price fluctuation is due to the eagerly awaited share buyback and cancellation decision being postponed until next January. However, from a long-term perspective, a 30 trillion won dividend is scheduled for the third quarter alone, with a dividend per share of 4,500 won, which is three times higher than Samsung Electronics' entire annual dividend, a very significant amount.

The large amount announced by Samsung Electronics includes 60 to 80 trillion won in funds that have not yet been disclosed on how they will be deployed. There is a strong possibility that this amount will be used as a powerful card for share buybacks and cancellations. Currently, Samsung Electronics' stock is not considered expensive. Based on 2027 earnings, the current price-to-earnings ratio (PER) is around 3.3x, and the current PER is approximately 3.8x, meaning the company could be bought outright and recover its investment in four years. Considering Micron's PER is 10x, Samsung Electronics is in an extremely undervalued range. The recent sharp decline is not due to a downturn in the semiconductor industry or company deterioration, but rather disappointment selling over the delay in share cancellations, and the semiconductor super cycle remains strong. Therefore, it is advisable for long-term investors that now is a reasonable price point.

Compared to companies like Micron overseas, Micron's current PER is 10 times. In contrast, Samsung Electronics can still be said to be in an extremely undervalued range. The recent sharp decline in Samsung Electronics was not caused by a downturn in the semiconductor industry or a deterioration of the company, but rather by disappointment selling due to the postponement of share cancellations. Since the semiconductor super cycle remains robust, if you are aware of this strong trend, Samsung Electronics could be at a very reasonable price point for long-term investors right now.

Samsung Electronics' US factory aims for completion in 2028 and plans to produce HBM4 2-stack products there. It is also noteworthy that the factory is being built with support from the US government. The core strategy for this factory construction is 'division of production' or 'duplication of production.' South Korea will handle the most critical technology, wafer manufacturing, while the US factory will perform packaging and testing of the manufactured wafers. This way, the final product will bear a 'Made in USA' label, but the original wafer technology will safely remain in Korea, maintaining technological superiority.

The original wafer technology remains safely in Korea, proceeding without technological concerns. There are three reasons why this US factory construction is a mid-to-long-term positive: First, it enables collaboration with customers. HBM is not mass-produced like a cookie-cutter product; various packaging requirements must be met for each customer. Having a base near customer factories like NVIDIA allows for faster and more accurate responses to demands. Second, it serves as a form of insurance, directly entering the US semiconductor market, its home turf.

In a situation where the US is asserting its self-centered policy, closing its doors and trying to expel China, local production acts as an insurance policy that can significantly mitigate the impact if tariffs or regulatory bombs are deployed in the future. Third, collaboration with world-renowned universities is unfolding, which is a strategic move to preempt next-generation HBM technology locally through an infrastructure of brilliant minds. This strategy is not a short-term stock price driver.

This US factory construction is not a short-term catalyst that will make a stock rise next week if bought this week. Production through this factory will likely show up in numbers only in 2029. Of course, there are also concerns. Currently, about 40 trillion won needs to be spent on shareholder returns, and this factory construction will incur an additional massive capital cost of 40 trillion won, so concerns about financial management are not unfounded. However, this US factory construction can be concluded as a long-term and positive blueprint for SK Hynix to solidify its No. 1 position in the HBM sector.

SK Hynix's US factory construction can be seen as a long-term and positive blueprint to solidify its No. 1 position in the HBM sector. Therefore, rather than impulsively chasing the stock based on this news, it is advisable to adopt a strategy of buying in installments whenever the stock undergoes adjustments, while monitoring the overall semiconductor industry trend.