Executive Director Sung Sang-hyun: “The Post-Samsung-Hynix Era is Coming”

Executive Director Sung Sang-hyun announced that he would be overseeing the stock operations division at ABP Asset Management. Additionally, he plans to meet students starting in September, teaching financial management in the Finance Management Department at Hanyang University. "I will now be in charge of the stock operations division at ABP Asset Management. And starting in September, I will be teaching financial management in the Finance Management Department at Hanyang University."

Executive Director Sung Sang-hyun pointed out that despite the Nasdaq index rising by 80% during the 1999 dot-com bubble, most individual investors did not make money. This was due to frequent 10% corrections in the index, causing investors to get hurt and leave the market, only to chase after it again when it surged. Based on this experience, Executive Director Sung emphasized the importance of clearly establishing one's own conviction regarding the major direction in the current market. "Even looking at 1999 alone, surprisingly few people made money. This is because the index frequently saw 10% corrections. People got hurt, stayed out, then chased it again when it surged, incurring losses again, and this repeated continuously."

Executive Director Sung Sang-hyun diagnosed that the liquidity indicators used to analyze the market over the past 20 years are no longer valid. In particular, he warned that judging the market solely based on the Fed's balance sheet could lead to mostly wrong predictions in this cycle. He emphasized that active government intervention in the market has now emerged as a key driver of liquidity, explaining that it is difficult to accurately interpret the current market situation with past metrics. "I believe the old lens we've been using to view liquidity for about 20 years is now breaking. If we still only look at the Fed's assets and the Fed's balance sheet, I believe most of us are likely to get this cycle wrong."

Executive Director Sung Sang-hyun pointed out that while the Fed might have pursued tightening policies to curb inflation, the government had a strong desire to inject liquidity. He analyzed that although the market temporarily pulled back in response to the Fed's tightening signals, the government's liquidity injection policies offset this, resulting in continued capital inflow into the market. "The Fed was tightening, and the Fed might have intended to curb inflation, but the government had absolutely no such intention."

Executive Director Sung Sang-hyun analyzed that the current U.S. government is following economic policies based on Modern Monetary Theory (MMT). He explained MMT's perspective that an increase in the money supply (M) does not necessarily lead to inflation (P); if it leads to real growth (Y), it does not significantly stimulate inflation. Accordingly, the government maintains the stance that fiscal deficits for promoting growth are not problematic, which he added is becoming a key source of liquidity supply. "I believe it is much more in line with Modern Monetary Theory now. Ultimately, if M leads to Y, real growth, then this easing does not significantly stimulate inflation."

The government is showing signs of easing bank regulations that were tightened after the COVID period. Executive Director Sung Sang-hyun stated that bank deregulation, a key pledge of the Trump administration, is now being presented as a guideline, which he interprets as a message for banks to release funds into the market rather than holding onto them. He explained that such deregulation could induce private credit creation, becoming an important channel for supplying the large-scale funds needed by the AI ecosystem. "Bank deregulation was actually a key promise of the Trump administration, and looking at what Besant said recently in March, guidelines for those areas have now been issued to some extent. Ultimately, it tells banks not to hold onto money but to release it into the market."

Executive Director Sung Sang-hyun announced that the U.S. government plans to implement Treasury buybacks starting September 9 to curb rising long-term interest rates. He specifically mentioned that this buyback might not only involve purchasing existing Treasuries but also discontinuing the issuance of new long-term bonds. This demonstrates the government's strong commitment to controlling long-term interest rates, and its impact on the market is drawing attention. "Because long-term interest rates are rising, what was discussed in the books was the U.S. government's buyback. That buyback starts on September 9. If this buyback is for long-term rates, then this is a temporary measure. Normally, they would buy back and then issue new long-term bonds, but they say they won't issue them this time."

Executive Director Sung Sang-hyun explained the timing of real productivity realization in the AI industry by drawing parallels with the introduction of PCs and the internet. He referred to the explosive increase in productivity to the mid-3% range from 1999 to 2003 when the internet connected after the widespread adoption of PCs in the mid-90s. This shows that it took about 10 years from technology adoption to productivity improvement. He predicts that the AI industry, after initial large-scale investments, will see a full-fledged increase in productivity from the moment AI agents, humanoids, and other industries begin to integrate. In other words, AI technology is currently spreading, and the 'real' period of actual productivity gains is yet to come. "When the internet connected, it surged explosively. So, from 1999 to 2003, productivity hit the mid-3% range. From the moment various industries join hands with AI and integrate, productivity will emerge. And that will be the real deal."

Executive Director Sung Sang-hyun predicted that the operating profit margin of semiconductor companies next year is unlikely to increase explosively from current levels, suggesting a 'plateauing' possibility. He expects analysts' perspectives on the earnings per share (EPS) of Samsung Electronics and Hynix to gradually change from the second half of this year to the first half of next year. He explained that this is a result of structural changes, such as the spread of AI demand, unlike past economic cycles. "Can the operating profit margin explode from its current level next year? I don't think so. I believe operating profit will plateau, and analysts' views on Samsung Electronics and Hynix's EPS will gradually change as we move towards the second half of this year and the first half of next year."

Executive Director Sung Sang-hyun emphasized that shareholder returns are crucial for the rerating of Samsung Electronics and Hynix in Korea. He argued that if they remain at the current PER (Price-to-Earnings Ratio) level of 10x, it will be difficult to escape the perception of being overvalued forever. He believes that when shareholder return policies, such as share buybacks or increased dividends, lead to trust, the PER multiples of Korean semiconductor companies can rise to levels comparable to other developed market companies. He specifically projected that the first half of next year would be a pivotal time, with both plateauing operating profits and shareholder returns converging as important issues, urging companies to actively pursue shareholder return efforts. "For Samsung Electronics and Hynix in Korea, I believe shareholder returns are key. If they fail to properly implement shareholder returns from now on, Korea's PER multiple will forever remain at 10x as overvalued. They are now starting to implement shareholder returns. If it begins to lead to trust, Korea's PER multiple can reach what other countries receive."

Executive Director Sung Sang-hyun analyzed that the recent strength of the Korean won will have a negligible impact on the revenue of Korean semiconductor companies like Samsung Electronics and Hynix. He viewed concerns about reduced export profits due to a falling exchange rate as excessive, stating that it is not at a level that would curb semiconductor cycle revenue. Instead, he emphasized that overall industry ecosystem demand has a more significant impact on semiconductor companies' performance than exchange rate volatility. "I believe the current drop in the exchange rate has absolutely no impact on the current semiconductor DRAM and NAND, nor on Korea's Samsung Electronics or Hynix."

Executive Director Sung Sang-hyun explained that the U.S. government is actively discussing easing bank regulations (SLR, LCR, etc.), which will effectively become a core mechanism for credit creation. He noted that using the Fed's lending facilities, collateralized by illiquid assets, is also being considered, making it highly likely that banks will expand lending and inject large amounts of capital into the economy. Citing past instances where enormous credit creation occurred whenever industry trends changed, he predicted a similar phenomenon in the current AI era. "The U.S. is now planning to ease these regulations... they have almost already set the guidelines... this is effectively becoming the core mechanism of credit creation... and we are likely to see it in the future. Enormous credit creation occurs when industry trends change."

Executive Director Sung Sang-hyun analyzed that while the Fed's hawkish remarks and the Treasury's policies may seem to point in different directions, they are ultimately collaborating towards a single goal: 'growth.' He named this collaboration the 'Fed-Treasury Accord 2.0.' Specifically, he explained that they are employing a strategy of reducing long-term Treasury supply and increasing the use of short-term Treasuries, and are likely to utilize stablecoins and bank deregulation to manage the demand for short-term Treasuries. This collaboration, he believed, reflects the government's strong commitment to injecting liquidity into the market and promoting growth. "Fed-Treasury Accord 1.0, I actually see this as 2.0. So, even if the Fed's statements and the Treasury's statements seem to point in different directions, they are ultimately collaborating towards a single outcome: growth."

Executive Director Sung Sang-hyun pointed out that it is very difficult to qualitatively identify leading stocks in AI technology because it can be applied to all industries. He explained that due to the pervasive nature of AI's spread, simply relying on industry outlook makes it hard to distinguish leading stocks. Therefore, he emphasized that a scoring method combining financial data and price momentum is essential. In particular, he stated that analyzing the correlation between rising operating profit margins and price movements to identify companies driving real growth is key to discovering leading stocks. "It's very difficult to find these qualitatively because every industry can use AI. Finding those is essentially the key to finding leading stocks."

Executive Director Sung Sang-hyun warned that approaching undervalued stocks when looking for leading sectors is likely to lead to poor performance. He argued that in growth industries, the 'undervaluation' metric can hinder investment. He emphasized focusing on stocks with a clear trend of increasing earnings, where such earnings growth is combined with price momentum. In other words, simply being cheap does not make a stock a leader; one must invest in companies that gain market attention through actual growth. "When looking for leading sectors, if you look for undervalued stocks, they are very likely to remain undervalued."

Executive Director Sung Sang-hyun analyzed that the U.S. government is serious about controlling long-term interest rates, aiming for a target range of 5% to 5.5%. He warned that if this range is breached, a significant market correction of over 20% could occur across the board, including the current AI cycle. He specifically predicted that liquidity flows from September to November would be a crucial inflection point determining the market's direction, adding that market movements during this period should be closely monitored. "I believe the U.S. government is serious about controlling long-term interest rates. I see that as 5 to 5.5. But if that breaks, the current AI cycle and related areas could suffer for several months."