Stock Market Plunges Due to Geopolitical Risks and Supply-Demand Imbalance

On September 8, the South Korean stock market sharply declined starting from 1:30 PM. This was due to the re-emergence of geopolitical risks with the spread of news related to an attack on Saudi energy facilities. As a result, both the KOSPI and KOSDAQ markets fell simultaneously, and individual investors' large-scale net selling further amplified market instability.

Although foreigners and institutions showed buying momentum, it was insufficient to absorb the trillions of won in selling by individuals. This situation heightened investor caution and fueled the index's decline. The decline accelerated towards the end of the trading day, increasing anxiety.

Hong Seon-hye analyzed, "News of geopolitical risks has intensified again, and this is having an impact," pinpointing heightened geopolitical tensions as a major cause of the market decline.

During trading hours, individuals recorded massive net sales of approximately 3.2 trillion won, leading the market downturn. This appears to be due to an increase in existing selling volumes combined with spreading anxiety, leading to additional panic selling.

In contrast, institutions showed selling in the futures market, while foreigners maintained buying in the spot market and continued futures buying, presenting a contradictory trend. This supply-demand imbalance further amplified market volatility.

Lee Kwon-hee noted, "What's important is that only individuals continued to sell more in the spot market. On top of this issue, they are selling even more sharply, with individuals selling close to 2.5 trillion won by 2 PM, and now it's momentarily reached 3.2 trillion won," emphasizing the intensity of individual investors' selling.

This contract is expected to span three to five years and is being discussed with no price ceiling on supply.

This type of contract reflects the supply-demand imbalance in the NAND flash market and indicates a seller's market. Kim Jang-yeol stated, "News even came out that Apple is trying to sign a 3-5 year long-term contract with Kioxia without a price ceiling on NAND prices," highlighting the significance of this news.

Analysis suggests that a large volume of stop-loss selling, beyond simply breaking even, is hitting the market. A trend of individual investors leaving the market, even at a loss, has been observed.

While this stop-loss selling short-term adds downward pressure on the market, it could also accelerate the absorption of supply, laying the groundwork for a future market rebound. Lee Kwon-hee observed, "Unexpectedly, many people are not selling at their break-even point but are cutting their losses and leaving," assessing the current market situation.

Individual investors' selling pressure tends to be particularly pronounced during sharp market downturns. Large-scale stop-loss selling amplifies market anxiety but simultaneously suggests the possibility of entering an oversold zone.

In particular, Hanwha Techwin, which possesses the APR1400 design technology (an improved version of AP1000), is expected to receive a significant boost.

Lee Kwon-hee explained, "There's talk that they are likely to use the AP1000 for building eight nuclear power plants. If so, it's a huge positive for Hanwha Techwin. Hanwha Techwin has the design technology for the APR1400, which is an improved version of AP1000." This suggests that Hanwha Techwin's unique technological prowess could be a key competitive advantage for participating in US nuclear power projects.

Meanwhile, rumors of Westinghouse stake acquisition and US investment-related stocks also showed strength, leading a general upward trend in the nuclear power theme. This is interpreted as a reflection of expectations for South Korean companies' entry into overseas nuclear power markets.

However, further verification is needed regarding the specific details and revenue models of US nuclear power projects. Beyond simple construction participation, various forms of cooperation, such as electricity sales revenue sharing, are expected. If the APR1400 model is adopted, domestic companies' entry across the entire nuclear power value chain could accelerate.

This raises concerns that South Korean companies may fall behind in the future competition for robot and physical AI standards.

Kim Jang-yeol expressed regret about the absence of South Korean companies, stating, "Arm Holdings... aims to create a standardization platform for robots and physical AI. They gathered many companies, but I noticed no Korean companies there. I had a slightly bad feeling about it."

This platform, with major global companies participating, is considered a crucial development that could shape the future ecosystem of the robot industry. The lack of participation by South Korean companies could lead to a neutral or negative outlook for domestic robot-related stocks in the long term.

Therefore, South Korean companies need to actively participate in these global standardization discussions and invest in technological development to secure future growth engines.

Market attention is focused on the upcoming KRX sector index change scheduled for the 11th. This rebalancing will adjust the weights of companies like Samsung Electronics and Hynix, and an estimated 1 trillion won in supply-demand movement is expected.

In particular, there are predictions that significant selling pressure could arise due to the reduction in Hynix's weighting. Kim Jang-yeol explained, "On the 11th, the KRX sector index will change. This means about 1 trillion won will move out of Hynix and into other places."

The tendency of US power generators to avoid nuclear projects could ironically present an opportunity for Korean firms.

Kim Jang-yeol stated, "The US government is asking us to collaborate, right? They're saying, 'You can build it cheaply and supply electricity cheaply,' while US companies are giving up," explaining that a structure where Korean companies produce and sell electricity at a low cost is possible.

Especially if the Korean-designed APR1400 model is adopted in the US, the entry of domestic companies across the entire nuclear power value chain could accelerate. This is expected to have a positive impact on securing long-term growth engines for the domestic nuclear power industry.

This business model is expected to provide opportunities for domestic companies to generate continuous revenue through power plant operation and electricity sales, beyond simply providing construction services.

Despite high expectations at the beginning of the year, communication equipment stocks have experienced a significant price correction. This is attributed to the fact that expectations for improved earnings have not yet materialized. The prevailing opinion is that stock prices can only rebound once contract orders materialize and translate into actual sales and profits.

Kim Jang-yeol emphasized the importance of earnings confirmation, stating, "They say it's coming, but what's really important is seeing it actually printed. I think it will only rise after confirmation." Investors should maintain a conservative approach to communication equipment stocks for the time being and wait for actual earnings improvements.

In particular, concerns about the competitiveness of domestic companies are being raised in the optical fiber market due to intensified low-price competition from Chinese products. Considering these external factors, communication equipment companies must focus even more on strengthening technological competitiveness and securing profitability.

In conclusion, communication equipment stocks are currently in a highly uncertain situation, and a cautious investment strategy is required until earnings improvements are clearly confirmed.

Analysis indicates that Hynix's PBR (Price-to-Book Ratio) is currently around 4.89 times, close to its historical valuation bottom. Considering that Hynix's PBR typically moves between 4 and 8 times, the current level is still considered undervalued.

Kim Jang-yeol advised that a holding strategy is more rational than selling, stating, "It's about 4.89 times right now. At 4.89 times, it's still at the lower end of its 4 to 8 times range. So, if you wait, it will go up." Even considering equity method valuation and changes in profit forecasts, selling at the current price is deemed inappropriate.

The flow of Hynix's American Depositary Receipts (ADRs) was identified as a key variable for future stock price recovery. Analysis suggests that trends in the US market are likely to have a positive impact on domestic stock prices.

Therefore, investors may consider a strategy of holding Hynix, trusting its long-term value, rather than being swayed by short-term market fluctuations. From a valuation perspective, the current period is considered attractive.

This represents a significant correction from past levels, which some investors may see as an attractive entry point.

Lee Kwon-hee made a positive assessment of the current stock price level, stating, "I calculated HVM's valuation a while ago, and it has probably come down quite a bit. It's down to 25 times. Yes. That means, 'Oh, it looks pretty good below 50,000 won.'"

The future trend of HVM's stock price is expected to be influenced by its ability to hold the 50,000 won line, as well as the movements of US SpaceX-related stocks. Investors should consider these factors comprehensively to formulate their response strategy.

The recent sharp drop in the won-dollar exchange rate is analyzed as entering a normalization process, ending an excessive divergence. This is attributed to the current account surplus reaching an all-time high and a large volume of foreign exchange conversions from export companies hitting the market.

Kim Hyo-jin explained, "I've plotted the won-dollar rate and dollar index over about 10 years since 2015, and while there are periods of divergence, it's quite natural for them to move somewhat similarly. But since last year, the gap has widened significantly," emphasizing that the abnormal exchange rate trend is being resolved.

The won-dollar exchange rate is expected to trade sideways in the mid-1,300 won range. This is interpreted as a result of a combination of improving fundamental strength of the Korean economy and changes in external conditions.

This indicator reflects the robust fundamental strength of the Korean economy and could exert downward pressure on the exchange rate.

Kim Hyo-jin stated, "Considering the current account surplus relative to GDP, the earnings, and the divergence of the exchange rate from its long-term average, it might still be a good investment for those who only deal in foreign exchange, though I haven't calculated it," emphasizing the investment appeal of the won-dollar exchange rate.

Experts analyze the appropriate level for the won-dollar exchange rate to be in the 1,290 won range. Therefore, if the improvement in South Korea's economic fundamentals continues, the exchange rate could face additional downward pressure.

The Taylor Rule is a formula that uses current economic indicators such as inflation and unemployment to calculate an appropriate interest rate.

Kim Hyo-jin explained, "There's a formula for calculating the appropriate interest rate in the US, called the Taylor Rule. It's a formula that calculates what the appropriate interest rate is for the current US economic strength by inputting things like inflation and unemployment rates," emphasizing the importance of the Taylor Rule.

This reversion means that as the Fed's interest rate hike cycle nears its end, the market is relying more on objective economic indicators to predict future interest rate paths. In the past, Fed guidance was a key predictive variable, but now the importance of actual data such as inflation and unemployment rates has grown.

Therefore, investors should pay more attention to changes in macroeconomic data such as inflation indicators and unemployment rates that are currently being released, rather than Fed announcements. These data movements will be the main factors determining the direction of US bond market interest rates.

While there are differing opinions on the importance of inflation indicators, the bond market appears to focus on specific inflation indicators to determine the direction of market interest rates. Kim Hyo-jin stated, "It doesn't seem like which inflation is more important is the point. It's simply, 'Which inflation is the bond market looking at?'" emphasizing that where the market's focus lies is crucial.

This suggests that there may be a discrepancy between the inflation felt by actual consumers and the core inflation indicators that the bond market considers important. The bond market tends to attach greater significance to specific inflation indicators to predict future inflation expectations and the direction of the Fed's monetary policy.

Therefore, investors need to identify which core inflation indicators the bond market is reacting to, rather than just overall inflation rates, and pay attention to their changes.

A lower exchange rate directly leads to a decrease in the operating profit of export companies.

Kim Jang-yeol explained, "From Korea's perspective, going into the third or fourth quarter, the earnings of companies including Samsung Electronics and Hynix could actually decline slightly, and that's because of the exchange rate," warning of the adverse effects of a strong won on semiconductor company earnings.

When the won appreciates, domestic semiconductor companies with high export ratios see their profits decrease when converting dollar earnings from overseas markets back into won. While this does not reduce the company's revenue, it pressures operating margins and can reduce overall profitability.

Therefore, domestic semiconductor companies will need to strengthen their hedging strategies against exchange rate fluctuations and strive to secure cost competitiveness through productivity improvements.

This is an effective way to maintain stable investments without being swayed by short-term market surges and declines.

Kim Jang-yeol advised, "In such times, you should approach it in phases, taking your time, especially when you're in a hurry. If you decide to buy in phases, you can buy at today's closing price," emphasizing the importance of phased buying. He suggested a method of dividing purchases into about 10 days over a month's trading period (approximately 20 days).

When market supply and demand are unstable, investing all at once in specific stocks or themes can lead to significant losses. Therefore, it is advisable to spread out buying times and make purchases multiple times over a period, rather than concentrating on a specific price point.

This phased buying strategy helps to lower the average purchase price from a long-term perspective and reduce the psychological burden of market uncertainty.

This is interpreted as a special market situation preceding the simultaneous expiry of futures and options.

Hwang Yu-hyun pointed out, "This week's expiry. The regular expiry. The futures and options simultaneous expiry on Thursday. I think this was the most powerful factor. When foreign buying stopped, it fell, didn't it?" emphasizing the importance of foreign futures buying momentum. As foreign cumulative futures buying contracts exceeded 40,000, additional buying capacity became limited, and the spot market index immediately reacted with a decline.

Foreign investors are major supply and demand players in the domestic stock market, and their futures positions significantly influence market direction. As foreign buying momentum stalled ahead of futures expiry, the market's upward momentum weakened, leading to the index's decline.

Therefore, this sharp decline is considered to be due to short-term supply and demand factors, and the focus should be on technical market movements observed in the week before expiry, rather than external variables.

This is because if funds are concentrated only in specific sectors when trading volume is insufficient, those themes can experience rapid declines when their momentum weakens.

Hwang Yu-hyun explained the risks of concentration, stating, "The emergence of concentration means that there isn't more money to come in, given the current low trading volume." This highlights the limitations of an investment strategy that relies solely on specific themes.

Therefore, investors should be wary of excessive concentration in particular themes and consider a rotation strategy across various sectors such as semiconductors, secondary batteries, and cosmetics. It is important to monitor the overall market trading volume situation and manage liquidity risks.

With the development of artificial intelligence (AI) improving access to information, there's a trend of market interest in stocks becoming standardized. This reveals the limitations of past individual stock theme trading strategies and suggests that a main large-cap focused investment strategy is becoming more important.

Hwang Yu-hyun emphasized, "Now, that kind of trading doesn't work anymore. So, you have to stick within the main themes and main stocks," advising a shift in investment strategy to adapt to market changes. He stated that even within the materials, parts, and equipment (SohBuJang) sector, trading mainly large-cap stocks is now necessary for survival.

AI analyzes vast amounts of data and quickly disseminates information on specific stocks or themes. This allows individual investors to obtain similar information to institutional investors, increasing market efficiency and making it difficult to profit from short-term surges and declines in specific stocks.

Therefore, investors should focus on main themes and large-cap stocks that lead market trends, and formulate investment strategies based on company fundamentals and long-term growth potential.

This is because hedge funds adjust their positions during the rollover process before expiry, causing temporary market volatility.

Lee Ji-won explained, "The volatility for simultaneous futures and options expiry is greater in the week before expiry, not the expiry week itself," cautioning investors against focusing solely on the expiry day. Compared to options expiry, simultaneous futures and options expiry tends to have a stronger settlement-within-range characteristic, resulting in relatively less unexpected volatility.

Therefore, investors should observe market movements in the week prior to expiry more closely and formulate response strategies, rather than focusing on drastic changes on the expiry day. It is important to grasp changes in hedge fund positions and rollover trends.

Based on this understanding, investors can make rational judgments without being swayed by unnecessary market noise.

This is interpreted as an intention to supply liquidity to the market, stabilize interest rates, and boost the economy.

Lee Kwon-hee explained, "Since they're differentiating between short-term and long-term bonds, one side is finishing up and the other is starting anew... it can produce similar effects to cutting interest rates and implementing quantitative easing," emphasizing the positive effects of the buyback program.

This program is expected to ease the tightening of the short-term market and put downward pressure on long-term interest rates, thereby lowering overall interest rate levels. This can help reduce corporate financing costs and promote investment.

However, it should be considered that the initial expected effects might be partially dampened due to warnings from the Federal Reserve. Nevertheless, the Treasury buyback is regarded as a policy tool that can positively impact the market in a high-interest rate environment like the present.

Given the current market situation, individual investors are advised to diversify strategies according to their proportion and investment type, and maintain a holding perspective. Specifically, the lows formed during the sharp declines in July and August are highly reliable, so a holding strategy is effective as long as these lows are not breached.

Lee Kwon-hee advised patience, stating, "For now, it seems right to hold on... The lows that emerged during the sharp declines in July and August have considerable reliability, so if those lows are not breached, you can win by holding on."

However, for those who invested using leverage, a strategy to reduce risk by converting to underlying shares (originally held stocks) during a market rebound is necessary, as leverage is more vulnerable to market volatility.

Additionally, for KOSDAQ materials, parts, and equipment (SohBuJang) companies, it was suggested that investors thoroughly verify actual earnings and price pass-through capabilities before approaching. This is because companies with poor earnings or weak pricing power can suffer greater damage during periods of market instability.