Leveraged ETF Regulations Worsen Stock Market Supply-Demand Imbalance

The stricter leveraged ETF regulations implemented in late July are significantly impacting the market. Lee Young-hoon, Sales Director, pointed out that prohibiting repetitive trading had a greater effect than raising margin requirements from 10 million won to 30 million won, as it prevented the circulation of short-term funds and concentrated individual investors' capital flow in one direction. Concerns are being raised that these regulations restrict individual investors' active market participation and could lead to liquidity problems for the market as a whole.

After SK Hynix announced a 40 trillion won share buyback and cancellation, the market expected an even larger share buyback from Samsung Electronics. Lee Young-hoon, Sales Director, stated that the market expected at least 60 trillion won in share buybacks, but Samsung Electronics announced 30 trillion won in special dividends and 15 trillion won in employee compensation, failing to meet market expectations. This led to a large volume of disappointing sell-offs, contributing to the decline of the domestic stock market.

One of the main reasons for the decline in the domestic stock market is the supply-demand imbalance. Lee Young-hoon, Sales Director, analyzed that new capital inflow from individual investors is virtually blocked due to losses from leveraged ETFs, and the rebalancing function of pension funds is not working properly, preventing normal market supply and demand. This has created a market structure that is forced to rely on foreign investors' positions, leading to increasing overall downward pressure.

Lee Young-hoon, Sales Director, mentioned his past experience of significant losses during the financial crisis after buying stocks just before the Chuseok holiday, stating that he is deeply contemplating how to respond to the stock market before Chuseok this year. With increasing uncertainty in global bond yields and delayed normalization of market supply and demand, investors are expected to have a stronger tendency to close positions before the holiday.

Lee Young-hoon, Sales Director, interpreted Bessent's remarks as a signal that the current market situation is not the end but the beginning. This means that Bessent has a lot of information and has shown a stance that market participants should not go against government policies. He also mentioned that the possibility of changes in quantitative easing (QE) or yield curve control (YCC) policies should be closely watched.

Lee Young-hoon, Sales Director, reported news that hardliners within Iran have begun to mention the necessity of ending the war. He analyzed that changes are appearing within Iran, with the Iranian President sharing the perception that continuing the war would lead to significant national losses. These changes could also affect the U.S. Treasury market, so future trends need to be closely monitored.

Market expectations for SK Hynix's share buyback volume reached 60 trillion won, but the actual decision was only around 40 trillion won. Lee Young-hoon, Sales Director, analyzed that this shortfall in expectations, combined with market supply and demand issues, led to a decline in stock prices.

Lee Young-hoon, Sales Director, pointed out that SK Hynix's recent share buybacks show a mechanical pattern. He noted that purchases are made at specific times, and stock prices tend to fall again around 3 PM when the buybacks end. This pattern suggests that the impact of share buybacks on supporting stock prices may be limited.

Unlike the past dot-com bubble, the AI cycle is characterized by a war for information monopoly involving nations and governments, not just competition between companies. Lee Young-hoon, Sales Director, predicted that as AI expands into real-life applications such as humanoids and autonomous driving, the market will expand much further, and this bubble will be larger and last longer than the dot-com era. Government intervention and widespread real-life application are cited as key factors driving the continued growth of the AI market.

Despite Morgan Stanley selecting Samsung Electro-Mechanics as its top pick and setting a target price of 3 million won, Lee Young-hoon, Sales Director, advised a cautious approach. He analyzed that it would be difficult for Samsung Electro-Mechanics to grow independently when the trends in front-end industries like Samsung Electronics and SK Hynix are sluggish. However, he acknowledged the possibility of an MLCC supply shortage due to increased demand for AI servers and automotive electronics.

While the rebound in lithium carbonate prices acted as a short-term catalyst for secondary battery stock prices, verifying future earnings is crucial, emphasized Lee Young-hoon, Sales Director. He pointed out the possibility of sluggish performance if AMPC (Advanced Manufacturing Production Tax Credit) is excluded and stressed the need for profitability verification. He advised making investment decisions based on next year's earnings rather than this year's.

Despite Doosan Enerbility signing a contract for key SMR (Small Modular Reactor) components with TerraPower, its stock price increase remains limited. Lee Young-hoon, Sales Director, predicted that nuclear power-related policies would become more concrete after the US midterm elections. He also mentioned the lack of nuclear power plant construction experience in the US and the importance of cooperation with large construction companies, emphasizing that policy support is essential.

Compared to the Unitree listing, there is criticism that the valuations of domestic robot companies are excessively high. Lee Young-hoon, Sales Director, highlighted the reality that the domestic robot industry is just beginning, and significant sales have not yet been generated.

Unitree itself has acknowledged that humanoids still lack practicality. Lee Young-hoon, Sales Director, explained that humanoids are currently used more for entertainment than for practical purposes, and analyzed that it will take time for actual industrial application, regardless of technological advancements.

Domestic companies like Samsung and LG possess strong competitiveness in the robot sector due to their clear distribution networks and component manufacturing experience. Lee Young-hoon, Sales Director, emphasized that with the aging society, there will be an inevitable increase in demand for robots, such as for replacing human labor in industrial sites and for elderly care services. He predicted that physical AI will become an essential future industry in Korea. The supply chain strengths of these domestic companies will be an important driving force for the growth of the robot industry.

Lee Young-hoon, Sales Director, recommended increasing cash holdings if there is an upward trend before Chuseok as an investment strategy for the second half of the year. He then suggested a strategy of increasing stock positions at a low point when noise related to the US midterm elections emerges after Chuseok. While he believes the year-end index is likely to be higher than the current level, he advised against chasing rapid market movements.