September Stock Market, Signals of Self-Correction Begin

Lee Han-young, Department Head, evaluated that the unusual plunge in July was the result of 'mindless, mechanical selling' that is difficult to explain by fundamentals. However, the market has since gone through a performance confirmation phase, proving that corporate fundamentals are robust. Currently, extreme volatility is decreasing in the market, which is interpreted as a sign that 'self-correction' is beginning as the market gradually regains stability.

Lee Han-young, Department Head, pointed out that investor fatigue deepened as the 'fake' pattern of leading stocks and sharp rises repeating four or five times continued after the plunge. Within this pattern, a supply and demand imbalance, centered on leveraged ETFs, occurred, eventually leading to forced selling due to margin calls, which fueled the sharp decline. Investors are now more cautious than hopeful about a market rebound due to repeated learning effects.

Rather, he emphasized that liquidity is abundant, as the level of customer deposits remains high at 99 trillion won, up from the beginning of the year. However, the reduction in trading volume to 30-40 trillion won indicates that investors have deeply entered a wait-and-see stance, and their focus, which was previously concentrated on specific sectors like semiconductors and secondary batteries, is gradually broadening as they seek new momentum. Investment entities are observing the market's self-correction to regain confidence and explore the next opportunities.

Therefore, he anticipates a gradual recovery through sector rotation rather than a rapid V-shaped rebound, emphasizing the need for investors to adjust their pace. He added that it is desirable to view September and October as a single period and respond to the market with a relaxed approach. Investors should take a long-term view of the market rather than being swayed by short-term movements.

Lee Han-young, Department Head, explained that interest rates and the distribution sector's valuation move in tandem, tending to decline together when interest rates rise. However, he added that since the stock market has already fallen significantly, there is no need to be overly sensitive to interest rate hikes. He assessed that the overall market conditions are not pessimistic, given that consumer purchasing power is still good.

Lee Han-young, Department Head, judged that there is no need to completely replace the market's leading stocks with new ones, as the fundamentals of existing blue-chip stocks remain excellent. Instead, he advised investors to set a 'theme' rather than focusing on specific stocks, and to concentrate on investment ideas and themes that align with it. This analysis suggests that companies with solid fundamentals can create greater synergy when combined with themes, even amidst market changes.

The main reason for this change is the advent of the 'switchgear cycle'. He specifically stated that LS Electric is expected to benefit significantly in the switchgear sector if regulations on Chinese products in the U.S. are strengthened. This emphasizes the importance of seeking investment opportunities based on changes in the industrial cycle, rather than specific companies.

Lee Han-young, Department Head, explained that it is difficult for related companies' performance to be immediately reflected before the regulation's implementation. Since customers have no reason to act prematurely before the effective date, short-term figures (performance) may be insufficient compared to the momentum of the regulation announcement. Investors should look beyond short-term performance and consider long-term benefits after the regulation's implementation.

Lee Han-young, Department Head, diagnosed that the core business of the automotive industry is currently in a phase of negative growth. In contrast, the robot industry is defending its valuation with expectations. Accordingly, he suggested that the most comfortable and efficient strategy for investors is to find and invest in components commonly used regardless of who manufactures the robot (e.g., LG Innotek), rather than specific robot manufacturers. This presents an investment perspective that focuses on the core component supply chain within growth industries.

He advised that stocks with expired momentum should be boldly replaced. Ultimately, he added that investment efficiency should be increased by selecting a group of stocks with the potential for concentrated short-term gains.

Lee Han-young, Department Head, mentioned that in July, the market displayed irrational behavior, not reflecting any good news, but from mid-August, the market finally began to respond to indicators such as performance and momentum. This is interpreted as a positive sign of the market's self-purification. In other words, conditions are gradually being created for investors to evaluate and select stocks based on rational criteria.

Lee Han-young, Department Head, explained that the U.S. 10-year Treasury yield is currently at the upper end of its band over the past five years. However, considering GDP growth, the current interest rate level is assessed as sufficiently manageable. He added that attention should also be paid to the possibility of a future shift to an interest rate cutting cycle. This perspective suggests that the current high-interest rate situation is not entirely pessimistic, and preparation for future changes is necessary.

He advised that the reliability of official unemployment rate indicators may decrease due to an increase in one-person startups, so attention should be focused on actual investment trends in industrial sites rather than interest rates themselves. This presents an investment perspective that places greater weight on microscopic industrial trends and corporate investment than on macroeconomic indicators.

Lee Han-young, Department Head, analyzed that while the index has decreased, corporate performance and content are improving. He advised that with the upcoming 3rd quarter earnings season after the holidays, there is no need to rush too much, checking the time schedule. He emphasized that now is the time to carefully select and accumulate good stocks, recommending prudent and long-term investment.