Focus on 'Quality Stocks' Amid High Interest Rates and Economic Slowdown

Ahead of the U.S. Federal Open Market Committee (FOMC) meeting, many in the market anticipated a rate freeze, but recent movements in the interest rate futures market suggest a higher probability of a rate hike. Notably, gasoline prices have risen for 12 consecutive trading days, intensifying inflationary pressure. This is interpreted as a preemptive measure to address inflation indicators in September and November.

The current market anticipates the U.S. implementing a 25bp additional rate hike in December, and Korea a 25bp hike in November. Should inflation or oil prices surge, some are even discussing the possibility of a 50bp hike.

Major economies such as the U.S. and Japan are actively employing expansionary fiscal policies. Excessive fiscal spending releases a large amount of money, increasing inflationary pressure. Therefore, a global policy combination of tight monetary policy to prevent economic overheating and a decline in the domestic currency's value is emerging. In contrast, China's lower fiscal spending results in comparatively less pressure for interest rate hikes.

The market currently views the likelihood of an unwind of the yen carry trade due to a sharp appreciation of the yen as low. Instead, analysis suggests that interest rate hikes could act as a means to curb inflation, contributing to reduced market volatility. Market participants tend to perceive interest rate hikes as a preemptive response to inflation. Not raising rates could paradoxically increase market uncertainty.

Investors may find it more advantageous to buy and sell when the market deviates from the upper or lower bounds of this range, rather than pursuing major directional moves. Excessive frequent trading may not significantly improve investment performance, and large-cap stocks like semiconductors are expected to show similar trends.

The fourth quarter is when third-quarter earnings are confirmed in October, and domestic companies' third-quarter results tend to be seasonally unexceptional. As earnings surprises for Korean companies are mostly concentrated in the first quarter, it is more necessary to prepare for an economic slowdown in the fourth quarter rather than placing high hopes on third-quarter earnings. During an economic downturn, it may be advantageous to shift portfolios towards stocks with good cash flow, such as dividend or value stocks.

AI training requires massive computations, necessitating high-performance semiconductors like HBM, large-scale data centers, and stable power infrastructure. In contrast, inference involves efficient and repetitive computations in distributed environments, leading to an analysis that investment flows need to shift to other sectors, such as semiconductor substrates. There is also an opinion that current infrastructure-related investments should be reduced, and companies like Samsung Electronics might be a better choice than Hynix.

Korea's power structure is considered unsuitable for operating large-scale AI training centers. Until now, only Hynix has been cited as a major beneficiary in the training market. However, with the full-scale opening of the AI inference market, where efficient computation is possible in distributed environments, many more types of companies could benefit.

It is also time to pay attention to AI Vertical, which refers to specific industries and industrial sectors where AI is integrated.

Recent arguments for slowing down AI development are vague and likely limited to the open AI market. The open AI market accounts for only about 5% of the total AI market, with open AI-related investments comprising about 20% of total AI investments. Therefore, while investments related to open AI may experience a temporary impact, the overall effect on the entire AI market is expected to be limited.

While the typical IT industry tends to follow a cycle of about 2 years, the AI cycle has already lasted nearly 4 years since the emergence of ChatGPT in early 2023. This suggests that AI has entered a long-term growth phase different from previous IT cycles, and AI-related discussions and growth are expected to continue for several years to come.

It is crucial to observe how traditional industries effectively integrate with AI.

Companies will accumulate a lot of internal data in the future, and those finding it difficult to upload all data to the cloud due to security concerns will manage much of it in-house. This will increase the importance and workload of System Integration (SI) firms. Therefore, it is crucial to observe the order trends of SI companies.

If passing legislation becomes difficult, the use of executive orders is likely to increase. Therefore, considering past policy momentum or shifts in specific theme stock trends, it's important to keep in mind that policy thrust might weaken during this period.

Investors should assess market direction by looking at both stock prices and trading volumes. If stock prices rise without accompanying trading volume, it's hard to consider it a true directional move. Therefore, until the end of the year, it's advisable to avoid excessive directional conviction or trend-following trades.

New ideas typically emerge after the government's policy direction or stance is confirmed, and the stock market tends to reflect such policy changes at the beginning of the year. Therefore, it is wise to maintain a wait-and-see approach, monitoring major conferences held in early next year and the policy direction of the next administration after the U.S. presidential election.

It was suggested that investing in U.S. stocks might be more advantageous than domestic stocks. This is because the interest rate hike speeds in Korea and the U.S. are aligning, making it more likely for the exchange rate to re-rise above 1,400 won rather than decline. The slowing pace of U.S. rate cuts and issues related to investments in the U.S. are also key variables that could influence the exchange rate.

Investment failures often stem from a pattern of entering the market when it's good and exiting when it's bad. When the market is falling, it is precisely the time to study and focus on the stock market. Consistent learning during this period allows one to endure the bottom, and when stock prices rise again, that accumulated knowledge can lead to opportunities for better returns.