September Stock Market Correction: An Opportune Time to Buy Stocks

It was pointed out that if the divergence between the Federal Reserve's (Fed) guidance and actual economic indicators widens, the market is highly likely to distort this and then experience a significant reversal later. The past erroneous case during the 2020 pandemic, when the Fed judged inflation to be 'transitory,' supports this risk. Citing Professor Hyun Song Shin's paper, it was emphasized that the market's excessive reliance solely on Fed guidance should be cautioned against.

Analysis suggests that Chairman Jerome Powell's inflation-related remarks at the Jackson Hole meeting affected market interest rates, causing a short-term decline. If this market decline is primarily attributable to Powell's remarks, a reversal is highly likely within the next two weeks. It was added that if oil prices remain stable, expectations for a Goldilocks scenario are also valid early next year.

While there appears to be no interest rate hike in September, the possibility of one additional hike by year-end remains open. However, even if a rate hike occurs this year, long-term interest rates already reflect this possibility at around 4.7%, suggesting the market can absorb it with a mild reaction. The observation was also made that aggressive rate hikes like those in 2022 will not occur.

Data analysis revealed no significant positive correlation between dividend yield and PBR (Price-to-Book Ratio). Instead, examples from companies included in the Philadelphia Semiconductor Index proved that companies with higher average operating profit margins also receive higher PBR valuations. This indicates that the investment criterion has always been operating profit margins, emphasizing that Nvidia's high operating profit margin stems from its monopolistic position.

In the past, there were instances where memory semiconductor PBR fell to 1x when operating profit margins dropped below 10%. However, due to factors like long-term contracts and High Bandwidth Memory (HBM), it is unlikely to return to a period of sub-10% operating profit margins, and PBR is not expected to fall to 1x. Considering that Samsung Electronics' PBR had fallen to 1.5x, the current declining phase is analyzed as an opportune time for aggressive buying.

It is necessary to confirm the growth of memory semiconductors, and investors should show courage when PBR is below 1.5x. It was added that it is advisable to invest in Samsung Electronics first, followed by SK Hynix, in terms of showing courage.

The Korean stock market tends to act as a leading indicator for the global economy, always rising first and correcting first. Therefore, the decline in the Korean market in September is likely to be less than that of the US market, as it has already undergone a correction. Nevertheless, the possibility of further decline in the US market throughout September cannot be ruled out.

Even if the semiconductor sector is sluggish, 'M6 companies' are highly likely to move and significantly enrich the market. Valuations for non-semiconductor sectors within KOSPI range from 10x to 15x, and the rising valuations of M6 companies are expected to contribute to market defense.

At the end of this year, individual investors' stock selling is expected to increase due to factors like avoiding large shareholder capital gains tax and dividend strategies. With deposits already below KRW 100 trillion, further selling is possible. From October, a diversification of stocks and a reallocation of supply and demand centered on ETFs are anticipated. Early next year, the return of capital that had exited, rather than policy factors, is expected to drive the market. The idea that shareholder return policies are not a panacea was also presented as part of this background.

The start of a stock-picking market begins with filling so-called 'empty houses.' The first signal of such a market is when stocks heavily sold by foreigners show signs of recovery. PharmaResearch's case was specifically presented to illustrate the potential rebound of these 'empty house' stocks. It was advised to pay attention to the upper valuation limits of cosmetics-related ODM/OEM companies, as their performance recovery is likely to lead to stock price increases. The pharmaceutical/bio sector, in addition to semiconductors, was also assessed as relatively undervalued with growth potential. It is expected that foreign buying will drive the market, with a broad diversification of stocks rather than concentrated buying in specific issues. As supply and demand shift, undervalued quality stocks are likely to regain attention, and changes in individual investor sentiment will also play a crucial role in this process. Ultimately, it was projected that as foreigners absorb individual investors' sell-offs at year-end, a new stock-picking market will open early next year.