Analysis suggests that interest rate hikes, structural improvements in the semiconductor industry, and ROI verification of AI investments are key to re-evaluating the South Korean stock market.
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Dr. Kim Hyo-jin takes the position that interest rate hikes can have a positive impact on the stock market. She explained that it is important for the central bank to provide continuous signals by raising rates in 0.25% increments. She believes that gradually raising interest rates in this way can achieve the policy goal of curbing inflation by subtly changing market and individual behavior.
The recent experience of the KOSPI falling from 9,150 to 5,200 was unprecedented even for market experts. Dr. Kim Hyo-jin recalled discussing the severity of the situation in meetings with her department head at the time. She conveyed that some even assessed the situation as worse than during the IMF crisis. She particularly urged new employees not to be confused about whether this is how the market usually behaves and to be courageous.
The core of Dr. Kim Hyo-jin's analysis is three proofs. The first is valuation, and she believes that all three must be proven to surpass previous highs. She emphasized that although she analyzed big tech earnings in detail in Part 1, there is still much to be proven. Observing the current KOSPI's recovery to the mid-6,000s, she assesses that it can now challenge its previous highs from this point.
Dr. Kim Hyo-jin repeatedly emphasizes that a rebound in the Korean stock market is difficult without foreign buying. She states that in the past, supply and demand forecasts were not analyzed in depth, but the current situation is different. She questioned whether the structure where domestic supply and demand withstood more than 300% of the unprecedented scale of foreign selling in the first half is sustainable. Therefore, she believes that focusing on foreign supply and demand is inevitable in the second half.
Inducing foreigners to buy Korean stocks is the central task for the future market. Dr. Kim Hyo-jin explained that the key to this analysis is whether foreigners can buy in the current situation, and what the market needs to add to make them buy.
It is known that US Treasury Secretary Yellen intervened in Japan's yen market, which Dr. Kim Hyo-jin interprets as an effort to preserve the value of US Treasury bonds. She explains that the most basic role of the US Treasury Secretary is to maintain the value of government bonds.
The large sell-off by foreigners in the first half led to a depreciation of the Korean won. Because of this, foreigners were hesitant to buy Korean stocks, fearing losses from exchange rates. However, Dr. Kim Hyo-jin explains that with the recent decline in the won/dollar exchange rate, this exchange rate risk has been somewhat alleviated.
While the saying 'stock prices are a function of earnings' is widely circulated, Dr. Kim Hyo-jin points out that this is an exaggerated expression. She argues that stock price movements cannot be explained by earnings alone.
Korean large-cap companies often achieve strong earnings but do not receive adequate recognition. Dr. Kim Hyo-jin points out that the Korean stock market values companies that generate sales only at the level of their sales revenue. This means there's a structural limitation where strong earnings are valued only as much as export volume. Understanding why Korean companies are undervalued despite their strong competitiveness is key to the first proof—valuation restoration.
The evaluation method for industries with high growth potential differs from that of traditional industries. Dr. Kim Hyo-jin explains that in growth industries, it is better if one company does not monopolize the market; instead, a structure where three or four companies compete is preferable. This is necessary for the industry structure.
Samsung Electronics, SK Hynix, and Micron are all entering HBM (High Bandwidth Memory) development. Dr. Kim Hyo-jin emphasizes that this goes beyond mere product development; it can elevate the level of transactions with premium customers like Nvidia.
SK Hynix and Samsung Electronics have historically shown a pattern of incurring losses or experiencing sharp declines in operating profit margins whenever industry conditions worsened. This reveals a structural difference from competitors like TSMC. Overcoming this weakness is a critical task for semiconductor companies.
Micron's 'take or pay' contracts are structured such that customers must either take the product or pay if they don't purchase it. This differs from the risk of obsolete inventory that semiconductor companies faced in the past. This change in contract structure suggests that the business environment for Korean semiconductor companies is improving.
The high growth potential of the AI industry cannot be explained by free cash flow alone. Dr. Kim Hyo-jin emphasizes that three main entities—government, businesses, and households—are each investing in AI technology, companies, and services from different pockets. This simultaneous pouring of money from these three sectors strongly maintains the AI industry's growth momentum.
Dr. Kim Hyo-jin predicts that the latter half of 2027 to 2028 will be a crucial period for Korean semiconductor companies. She believes that production will be ready to increase during this time, and value re-evaluation, such as shareholder returns, will also expand. The important point is that even if the semiconductor industry deteriorates again during this period, if profit margins can be defended, stock prices will rise to a completely different level.
For the demand for AI technology to persist, someone needs to pay subscription fees. Whether it's individuals or companies, they must take money from their own pockets to pay for AI services. For this to be possible, money must first be accumulated in their pockets. Dr. Kim Hyo-jin emphasizes that the sustainability of the AI industry depends on this simple principle of cash flow.
While the central bank moving interest rates by 0.25% at a time might seem like a small change, it actually functions as a powerful signal. Dr. Kim Hyo-jin explains that just as clothes get soaked by light rain, small accumulated signals gradually change people's behavior.
The relationship of trust in the central bank is extremely important. If the market judges that the central bank's policy is wrong, the bond market reacts immediately by dumping assets. This shows how crucial market participants' trust is, more than what the central bank says with interest rates or money supply.
Companies are making large-scale investments in AI technology, but now they have entered a stage where they must prove that these investments have generated actual profits. Yoon Ssen expressed this as capital efficiency indicators. Dr. Kim Hyo-jin emphasized that AI is the subject of the third proof and pointed out that investments must prove themselves through returns.
Currently, domestic supply and demand have already accumulated many scratches. Therefore, where the Korean stock market goes next will be determined by how much foreigners buy. Yoon Ssen emphasized the need to closely monitor foreign supply and demand.
Answers come from the transcript, with the exact spot cited.
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