Interest Rate Noise Causes Sharp Drop in Pharmaceutical and Biotech Stocks… KOSPI Defended by Samsung Electronics and SK Hynix Shareholder Return Policies

Last Tuesday, the KOSPI briefly rose to 7,200 during intraday trading, showing a positive mood, but then rapidly declined as foreign and institutional investors began to sell. This decline was largely due to interest rate noise triggered by soaring 10-year and 30-year government bond yields in major countries including the US, Japan, and Europe. This situation exacerbated concerns about capital raising for big tech companies and worsened investment sentiment in the semiconductor sector.

Even amidst interest rate noise, expectations for shareholder return policy announcements from Samsung Electronics and SK Hynix led to a rebound in the KOSPI market. In particular, the KOSPI closed higher last week, showing a positive trend. However, this phenomenon led to a concentration of supply and demand towards Samsung Electronics and SK Hynix, causing the KOSDAQ market to struggle with over 1,400 stocks declining, thereby intensifying market polarization.

Bloomberg reported that Samsung Electronics was expected to announce a large-scale shareholder return policy immediately after its board meeting, which took place last week at 4 PM. The expected scale is reported to be at least 90 trillion won and up to 110 trillion won. This report led to a concentration of buying toward large-cap semiconductor stocks such as Samsung Electronics and SK Hynix in late trading, acting as a psychological support for the overall market. Investors are watching to see if this policy will alleviate market uncertainties and improve investment sentiment.

Recently, pharmaceutical and biotech companies have seen their stock prices plummet despite a series of positive announcements. Alteogen, for example, failed to avoid a stock price decline even after announcing a 250 billion won facility investment plan. D&D Pharmatech also received an FDA report confirming significant efficacy (p-value ≤ 0.001) in its global Phase 2 clinical trial for the diabetes treatment DD01, but its stock performance was poor. Olix, in particular, experienced a sharp decline of 9-10% despite news of a technology transfer. This phenomenon suggests that the increased discount rate for future value due to interest rate hikes is having a more sensitive impact on the pharmaceutical and biotech sector.

Even as market interest rates rise and credit default swap (CDS) premiums increase, Big Tech companies' AI infrastructure investments are not expected to stop. The memory sector and AI infrastructure companies maintained relatively strong performance amidst this interest rate noise. Marvell Technology securing Google's AI chip contract and its stock price surge serves as strong evidence supporting this investment trend.

Some market participants criticize the government's expanded bond buyback measures as merely a temporary solution. With the current debt level significantly increased, questions remain as to whether simply repurchasing government bonds can be a fundamental solution to fiscal problems.

The US debt has surpassed $40 trillion, reaching a serious level. As a result, annual interest costs have risen to nearly 20% of the total US tax revenue. The increase in debt leads to higher government bond yields, which in turn exacerbates the US administration's fiscal burden, creating a vicious cycle. Such massive debt and interest costs continue to act as a source of instability in financial markets.

The current interest rate noise in the market is considered separate from benchmark interest rate hikes. The possibility of additional benchmark interest rate hikes at the September Federal Open Market Committee (FOMC) meeting has largely disappeared. However, with the Jackson Hole meeting speech approaching, there is a prevailing perception that the likelihood of additional benchmark interest rate-related noise, depending on the speech content, is low.

There is a structural difference between the free cash flow (FCF) standards used by Korean semiconductor companies like Samsung Electronics and SK Hynix, and those used by US companies. While 'excess cash' for US companies refers to funds purely remaining after all expenses, including investments, memory semiconductor companies have historically found it difficult to realistically secure such FCF due to the cyclical nature of their industry. However, with the full-scale commencement of AI investments, changes are occurring in the FCF generation structure of memory semiconductor companies.

SK Hynix's plan to repurchase 40 trillion won worth of its own shares is a massive amount, equivalent to 3% of the company's market capitalization. This means using funds that could acquire 50% of Hyundai Motor's stake or an entire Samsung SDI for share buybacks. While such a large-scale shareholder return policy is positive for enhancing shareholder value, it also necessitates deep consideration of fund allocation strategies for reinvestment and securing future competitiveness. Concerns are also raised that indiscriminate returns could long-term harm the company's future competitiveness.

Moderna's melanoma treatment is custom-made for each patient, taking approximately 6 weeks to produce the necessary treatment for one individual. While this offers the advantage of personalized medicine, it implies significant technical and production challenges if a transition to mass production becomes necessary in the future.

The specific terms of Olix's technology transfer agreement, including the contract size, milestones (stage-by-stage technology fees), and non-refundable down payment, were not disclosed at all. This appears to be due to confidentiality clauses, but for investors, it acts as limited information, making it difficult to assess the actual value of the contract.

Olix's technology transfer agreement is not a complete transfer of the substance itself but rather a selective transfer of rights for a specific 'nucleotide sequence' that targets a particular gene. This contractual method has strategic implications, allowing Olix to maintain its own development capabilities while securing the right to conduct additional technology transfers to other companies. In other words, it is interpreted as an intention to preserve the company's long-term growth momentum by transferring only specific parts of its core technology.

Alteogen's announcement of a 250 billion won new factory construction plan is interpreted as a strong demonstration of confidence in expanding sales of its own products, such as Alt-B4. This appears to be a strategic decision to reduce the risk of technology leakage and enhance production efficiency by strengthening in-house production capabilities rather than solely relying on outsourcing. The company has expressed confidence in increasing sales and strengthening market dominance through direct production of its own products in the future.

Robotize has been recommended as a promising stock for next week. This company is highly likely to become the most critical supply chain company in LG Group's robot business transformation, especially its shift to physical AI. It is expected to benefit from the humanoid robot collaboration between LG Electronics and NVIDIA, and possesses the technology to manufacture smart actuators, which are core components. Its stock price has currently fallen by 20%, entering a consolidation phase around the 20-day moving average.

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