KOSPI Faces Test to Secure 'Magic 7,000 Mark'

While evaluations differ on whether stock price adjustments have been sufficient, there is an opinion that future market reactions to additional rate hikes should be closely monitored.

Kim Jang-yeol, expert, stated, "While the interest rate hike is 70% priced in, I think the stock market's reaction by August might have already fully materialized," suggesting a low possibility of further adjustments.

Analysis of foreign investors' options positions has provided some insight into the market's support and upper limits. There is an observed trend of perceiving the current index level as the bottom, and the call option level of 1112-1115 (KOSPI index 7,150) as the upper limit.

In particular, based on put-sell positions, there is a strong tendency to view the current level as the bottom. Foreign investors are interpreted to be adopting a box strategy, setting 7,100 as the high and 6,700 as the low.

Lee Kwon-hee, expert, explained, "It seems they view the current level as the bottom and the upper limit of the box at around 1100, or 7,100," highlighting the significance of foreign positions.

This indicates foreign investors' perspective on short-term market direction and serves as an important reference for future market movements.

This investment is interpreted as an expansion not only into existing marine engines but also into land-based data center power generation engine businesses.

As the possibility of a new power infrastructure-related narrative emerges, expectations are growing that HD Hyundai Heavy Industries will establish itself as a power solutions provider beyond a simple shipbuilding equipment company.

Kim Jang-yeol, expert, said, "The news or reports say this is new; I'm not sure how new it is. However, this investment is about 830 billion won, right?" expressing interest in the investment size.

This leads to the prospect that it could positively impact the overall related industries, coupled with the increasing trend in power demand.

An opinion emerged that a cautious approach is needed for biotech investments. While some loss-making biotech companies highlight technology export issues, it is advised to distinguish these from speculative themes.

Especially during interest rate hike periods, timing biotech investments carefully is crucial. Investing after interest rate announcements or earnings reports is suggested as a way to reduce risk.

Lee Kwon-hee, expert, emphasized, "For biotech, when should you really invest? It's after interest rate announcements. And after earnings reports. Yes. When timing your investments."

This is interpreted as a strategy to streamline less profitable product lines and focus on high-value-added products.

This decision is expected to positively impact domestic companies in similar business areas, such as Amotech and Samwha Capacitor. Analysis suggests they could benefit from reduced supply, similar to the past case of DB HiTek's withdrawal from the foundry business.

Lee Kwon-hee, expert, mentioned, "The report that came out, Murata said they would discontinue MLCCs that aren't profitable," highlighting the ripple effect of this decision.

If the discontinuation materializes, expectations are growing for an expansion of domestic companies' market share and improved profitability.

Oracle's RPO (Remaining Performance Obligations) surged to $600 billion, drawing market attention. RPO signifies future revenue not yet recognized, suggesting potential revenue growth for Oracle.

However, critics point out that this also entails a significant investment burden over 3 to 5 years. Concerns were raised that free cash flow (FCF) could deteriorate due to a mismatch between investment timing and revenue recognition timing.

Kim Jang-yeol, expert, explained, "What is this? In Korean, it's future revenue not yet recognized as sales, based on contracts with customers, and this has increased significantly," emphasizing the meaning of RPO.

Investors' judgments are divided between future revenue expectations and the possibility of short-term cash flow deterioration.

Former President Donald Trump officially declared that if Republicans win the midterm elections, he would give every adult citizen $5,000. This unconventional promise is interpreted as a strategy to win over voters.

He mentioned tariffs as the funding source for the pledge. This is seen as re-emphasizing protectionism, a key policy stance of the Trump administration.

Song Jae-kyung, expert, stated, "He officially declared that if he wins the midterm elections, he will pay every adult citizen $5,000," relaying the promise.

As Democratic landslide betting increases and Trump is cornered, attention is focused on the background behind these cash handout promises.

Analysis suggests that the September stock market decline is primarily due to seasonal and structural factors. The biggest reason for the average decline in the stock market in September over the past 25 years is the tax-loss harvesting strategy by US mutual funds, which have their fiscal year-end in September.

Mutual funds and other institutional investors tend to sell off their holdings in September to realize losses. Individual investors, on the other hand, typically conduct tax-loss selling in October.

Song Jae-kyung, expert, explained, "Usually, the biggest reason why the market falls in September on average over the past 25 years is that most US mutual funds have a September fiscal year-end," emphasizing the characteristic of the September market.

This selling trend often leads to a pattern of re-purchasing blue-chip stocks from November, so some views consider the September decline a temporary phenomenon.

Two scenarios for reducing high government debt globally were presented. One is financial repression, where governments forcibly impose low-interest debt. The other is to induce high inflation to decrease the real value of debt.

In this situation, the limitations of a fiscal deficit structure where US Treasury interest costs exceed tax revenue are highlighted. This is an indicator that the government debt problem has reached a serious level.

Song Jae-kyung, expert, said, "Governments globally, realistically, have two ways to reduce high government debt: financial repression, which means forcibly imposing it. The second is simply through high inflation, whether intended or not, where debt erodes in value."

This signifies a shift in key foreign institutional demand for US Treasuries.

As Japan and Norway, formerly major buyers of US Treasuries, adjust their portfolios, concerns about declining confidence in US Treasuries and potential dollar weakness are rising. This could be interpreted as a signal of significant changes in international financial markets.

Song Jae-kyung, expert, stated, "Norway's sovereign wealth fund is one of the world's largest funds, over $2 trillion. Historically, Japan and Norway were key foreign buyers of US Treasuries, but they have finally started selling US Treasuries and buying Japanese ones."

Analysis shows that AGI (Artificial General Intelligence) technology is strong in short tasks of about 15 minutes, but its autonomous performance and efficiency drop sharply as task duration increases. This highlights the practical limitations of AGI.

Specifically, when AGI performs long tasks without human intervention, the success rate drops by more than half. Therefore, the conclusion is that human intervention is essential in the use of AGI.

Song Jae-kyung, expert, explained, "It does very well when tasks are done within 15 minutes. That is, it performs well when the task size can be completed within 15 minutes, but as the time increases, the probability of it performing well autonomously without human intervention drastically decreases."

The prevailing outlook is that high interest rates and high oil prices will persist long-term. With the US debt structure making sustained high interest rates likely, investment strategies focusing on stable dividend income rather than future growth expectations have become crucial.

Therefore, it is advised to rebalance portfolios towards value stocks rather than growth or momentum stocks. In a rotational market, value-oriented stocks like bank stocks tend to show relative strength.

Song Jae-kyung, expert, said, "For your portfolio, you should go with value stocks rather than growth or momentum stocks. And if this period can be maintained to some extent, even today, in Korea, bank stocks and such are holding up relatively well."

In the current market environment, companies with stable earnings and attractive dividends may be more appealing to investors.

Whether the US 10-year Treasury yield will reach 5% has emerged as a key market variable. Whether 5% will shift from an old resistance level to a new support level is a crucial factor in determining the future direction of interest rates.

Market consensus leans towards the Federal Reserve's (Fed) interest rate hike cycle ending early. However, how many additional rate hikes will occur if the cycle ends early remains a significant concern.

Vincent, expert, stated, "We'll have to see tonight, but if the US 10-year Treasury yield touches 5% today and then comes down, its future direction will be determined after that, which is what most people are watching."

These interest rate changes could have a major impact on the overall stock market, drawing investors' attention.

The recent strength of the Korean won is expected to negatively impact the earnings of export companies in the third quarter. There is a possibility that actual profits may be lowered by about 10% compared to analysts' earnings estimates.

This implies the need to bridge the gap between earnings and stock prices. Concerns are growing that companies' earnings growth trajectory may slow down in the short term.

Vincent, expert, explained, "There's a possibility that estimates might be lowered by about 10%. Everything is connected. They say earnings are good, but if Q3 earnings decrease more than expected due to the strong won, then the EPS gradient will also decrease, and stock prices are a function of that gradient."

The possibility of corporate earnings deterioration due to exchange rate volatility is also expected to negatively affect investor sentiment.

This indicates a medium-to-long-term shift in the semiconductor industry.

DRAM prices continue their upward trend, and a re-evaluation of LTAs (Long-Term Agreements) is expected around next summer. SK Hynix's HBM (High Bandwidth Memory) moat is still considered valid.

Vincent, expert, said, "In the Q2 conference call, both Samsung Electronics and SK Hynix consistently argued that this cycle is now a 5-year one. So, despite ups and downs and debates about cyclicals, DRAM prices are still trending upwards."

From a long-term perspective, the semiconductor industry's growth momentum remains valid, and technologically competitive companies are expected to lead the market.

The US is currently in urgent need of long-term interest rate stability, specifically securing demand for its Treasury bonds.

China, on the other hand, is grappling with abundant liquidity but few suitable investment opportunities. In this situation, there is speculation that some agreement in the financial sector could be reached between the two countries.

Vincent, expert, explained, "They meet on September 24th, and the US has long-term interest rate problems, while China has overflowing money with nowhere to invest. I see the possibility of some agreement in the financial sector regarding US Treasury bonds, which the US is struggling with."

Amidst US-China tensions, attention is focused on whether both countries will adopt a pragmatic approach to stabilize financial markets.

Housing costs (rent) are a key component of CPI, but a sharp rise is not expected. The overall inflation pressure will be the market's focus.

Lee Kwon-hee, expert, stated, "Actually, yesterday's PPI was a bit unfavorable. Items that we use a lot, like airfares, came out quite expensive. So, we need to see if those factors immediately affect CPI or are reflected with a lag."

The CPI results are expected to significantly influence the Federal Reserve's (Fed) monetary policy decisions.

It is a principle to first liquidate stocks that are continuously falling after their trend has broken.

Advice was also given that it is rational to sell stocks like Hyundai Motor that are breaking their lows, even now. Simply holding on because the drop is excessive can lead to greater risk.

Lee Kwon-hee, expert, emphasized, "There are stocks that are falling and stocks that are holding up. You must first liquidate the stocks that are falling. For example, Hyundai Motor is almost breaking its low, and it is actually right to liquidate such stocks even now."

Experts advise that 'comfortable' stocks (those with excessive drops) can actually be riskier, and a stop-loss strategy based on objective judgment is important.

An opinion emerged that an aggressive buying strategy should be adopted if the index falls further. Specifically, analysis suggests that the KOSPI levels below 6,600-6,700 are a good time to consider incremental buying.

Capital expenditures by big tech companies are expected to continue despite interest rate hikes, which could act as an overall growth driver for the market. The current levels are considered undervalued relative to earnings.

Lee Kwon-hee, expert, shared his strategy, "I think so. I'll stick to the strategy I mentioned at the beginning: if it falls, I buy. From around 6,600, specifically below 6,700, I'm thinking of buying a bit more aggressively."

Experts believe that corrections will be short and rebounds strong, advising to approach the situation as an opportunity rather than with excessive fear.

While a slow change in the exchange rate allows companies time to adjust, a rapid decline directly impacts earnings along with exchange rate losses.

Sudden exchange rate fluctuations cause menu costs (price adjustment costs), negatively affecting companies' operating profit margins. This can be a significant burden on Korea's export-oriented economy.

Cha Young-joo, expert, expressed concern, "The exchange rate fell from 1,400 won to 1,300 won, roughly a 20% drop. It fell in about two months. If the exchange rate rises or falls slowly, companies adapt. But because it fell suddenly, companies don't have time to adapt."

Companies are struggling to establish management plans due to unpredictable exchange rate volatility.

There's a textbook economic theory that increased profits for Samsung Electronics and the robustness of the Korean economy lead to an appreciating won (falling exchange rate). This logic explains the correlation between foreign stock purchases and a strong won.

However, the current market is exhibiting an unusual situation, moving differently from this textbook theory. There is a possibility that foreign investors' positions in Samsung Electronics and SK Hynix are already saturated.

Cha Young-joo, expert, explained, "If Samsung Electronics goes up, what does that mean for Samsung Electronics' corporate profit? It increases tremendously. And what does that mean for the Korean economy? That it's solid. So, what happens to the value of the won? It goes up. What happens to the exchange rate? It falls," referring to the theoretical relationship.

This suggests that new variables are at play that cannot be explained by traditional market analysis methods.

Analysis suggests that a sudden shift to a strong won at 1,000-1,100 won is very dangerous for Korea, given its export-driven economic policy. Simple calculations show that export companies' revenues could fall by about 30%.

Export companies with low operating profit margins find it difficult to cope with such rapid exchange rate fluctuations. This factor further deepens concerns about the government's economic policy direction and exchange rate decisions.

If the government directly intervenes in the exchange rate, it risks attracting speculative forces, requiring a cautious approach. Policy authorities face the challenge of finding a balance between exchange rate stabilization and securing export competitiveness.

Cha Young-joo, expert, emphasized, "The question is where we put our economic policy. If we pursue an export-driven economic policy, such a strong exchange rate can be very dangerous. A simple calculation shows a 30% drop in sales, so can our companies really handle that currently?"

It is urgent to meticulously analyze the economic repercussions of exchange rate fluctuations and prepare proactive countermeasures.

The dot plot contains the Federal Reserve (Fed) members' projections for future interest rate hikes.

If the exchange rate stabilizes around 1,300 won, it is expected to positively impact export companies. This could alleviate corporate earnings uncertainty and improve investor sentiment.

In the fourth quarter, a general market reset is anticipated, with corporate earnings estimates becoming clearer. Major companies like Samsung Electronics and SK Hynix have already seen market concerns reflected to some extent in their stock prices.

Cha Young-joo, expert, said, "We'll have to see next week. Will the FOMC make an interest rate decision, and importantly, the dot plot will be released. It will provide guidance on the future direction of interest rates. Our exchange rate will likely move based on that."