As long-term Treasury yields surge, increasing concerns about a prolonged high-interest rate environment, various downside factors such as the AI bubble theory and rising oil prices are weighing on the market.
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Global long-term Treasury yields are surging, putting pressure on the market. According to Bloomberg data, the 30-year U.S. Treasury yield hit a new high since 2007. Borrowing costs in France rose to their highest since 2008, and in Germany to 2011 levels.
As hyper-scalers have utilized long-term borrowing and debt financing, questions are being raised about whether the AI industry can withstand the current high-interest rate environment. Attention is focused on whether the AI industry, accustomed to 6% interest rates in the past, can maintain growth even at 6%, 7%, 8%, or 9% rates. Despite high growth expectations for the AI industry, rising capital costs could restrict investment and expansion.
Bank of America (BofA) fund manager survey results show that the AI bubble theory has emerged as the number one market concern. This indicates growing warnings about potential overheating alongside expectations for the AI industry. At the same time, other geopolitical risks or recession concerns are relatively lower. The discrepancy between the pace of AI technology development and actual profit generation is a factor fueling market unease.
The recent rise in U.S. Treasury yields shows a steady upward trend rather than a one-off event like the outbreak of war. As seen in the chart, interest rates have been continuously rising, setting higher lows since this year, and even since the second half of last year. Long-term Treasury yields, in particular, are remaining high and reacting sensitively to the market, with the 10-year U.S. Treasury yield approaching its highest level since 2007.
Three main factors are cited for the rise in U.S. Treasury yields. First is the across-the-board increase in service prices, which keeps the Federal Reserve's (Fed) tightening stance. Second, the U.S. fiscal deficit has expanded to about 7% of GDP, leading to increased market concern over public finances, especially with 30-year Treasury yields rising more significantly. Third, the massive capital demand from big tech companies leading the AI industry has led to increased bond issuance, creating a subtle rivalry with the U.S. bond market. These three factors combine to increase upward pressure on long-term Treasury yields.
The Taylor Rule suggests an appropriate interest rate of 5.1% as the threshold for U.S. Treasury yields. It is believed that there is a possibility for current interest rates to approach 5.1%. Experts anticipate that if interest rates reach around 5%, buying interest will emerge, limiting short-term surges. However, if this level is exceeded, it could impose significant pressure on the market.
New funding channels for AI infrastructure investment are opening. A $500 billion AI infrastructure funding, led by NVIDIA and BlackRock, is being pursued. This funding mechanism ensures the sustainability of AI investment by transferring risk to third parties. While there had been concerns about capital inflow across the AI industry, this funding is significant as it establishes a route for money to continue flowing into the AI sector.
The current market situation differs from the sharp decline in July, necessitating an adjustment to market response strategies based on changing macro conditions. While the July decline was seen as a buying opportunity, the current macro indicators are shifting, which warrants concern. Changes in macro indicators dictate liquidity and economic trends, so the market's response, including defensive policies, should be closely watched.
If the index plunges, whether a lower tail forms around 6,500 points will be a crucial indicator for a rebound. If a lower tail appears in the afternoon session, it could be interpreted as a sign that the market still has strength. Furthermore, the sustained inflow of foreign buying will be a significant driver for any future market rebound.
Defense stocks showed strength after a news report, published just before market open, suggested that Hanwha Aerospace could be solely selected for a U.S. self-propelled howitzer project worth up to 30 trillion won. This news drove stock prices up from the start, capturing market attention. Defense stocks have shown a clear upward trend alongside war-related issues, and this report of potential sole selection acted as additional momentum.
While rising long-term bond yields are becoming a long-term market consensus, some point out that the fundamental trends of individual industries are more important. Even if Treasury yields remain high, core industries like semiconductors can, some argue, advance, disregarding market concerns due to their own growth drivers. However, geopolitical risks, such as the Strait of Hormuz issue, act as variables that exacerbate the interest rate burden, increasing market volatility. In other words, analysis suggests that unexpected external variables have a greater impact than interest rates themselves.
For thematic stocks like those related to North Korea, the primary driver is whether supply and demand converge, rather than actual reasons or fundamentals. In the domestic stock market, thematic stocks show a tendency to move even if their names are merely similar to a typhoon, indicating that investor interest and capital inflow significantly impact stock prices even without clear reasons. A rotational trading often occurs, centered around illiquid stocks, based on continuous schedules and news, and investors should pay attention to these supply and demand flows.
Robot industry events, such as the listing of robot company Unitree, can act as a short-term catalyst boosting stock prices. However, concerns about increased competition are being raised in the mid to long term. The growth of China's robot industry, in particular, could raise doubts about the competitiveness of domestic robot companies. Therefore, investment in robot stocks must consider both short-term news flows and the mid-to-long-term industry competitive landscape.
Samsung Electro-Mechanics received a strong fundamental assessment despite a stock price adjustment after its Q2 earnings announcement. There is a possibility of upward revisions to earnings estimates, as annual MLCC (Multi-Layer Ceramic Capacitor) profit margins and utilization rates are approaching past peak cycles. Analysts are writing positive reviews of Samsung Electro-Mechanics' earnings, raising expectations for future performance improvement.
Expectations for improved earnings are growing as Samsung Electro-Mechanics' MLCC price increase materializes. Real negotiations for price hikes with major customers are understood to have begun in late June. As a result, these price increases are expected to translate into actual improvements in profitability starting in the fourth quarter of this year. In particular, surging demand for AI server products has exacerbated the tight supply of MLCCs, positively impacting price negotiations.
Opinions are divided on the market's reaction to the rise in the U.S. 10-year Treasury yield. On one hand, some analysts suggest that funds may exit risky assets like the stock market as risk-free assets like Treasuries offer a 4.7% yield. This is because it sets a standard where investors can earn stable returns without taking unnecessary risks. On the other hand, questions are raised about whether the fear of interest rates truly overwhelms the entire market. Counterarguments suggest that the impact of rising interest rates on the overall market might be overstated, as growth stocks such as biotech, which are sensitive to interest rates, are paradoxically rising. These conflicting views illustrate the complex effects of rising interest rates on the market.
The U.S. Strategic Petroleum Reserve inventory is at a lower level compared to the past, raising concerns about potential upward pressure on oil prices. If inventories need to be replenished, purchases will occur, which could ultimately lead to higher oil prices. In particular, there is a forecast that inventory replenishment could become more likely after the midterm elections, potentially increasing future oil price volatility.
It was suggested that, in addition to the semiconductor sector, other sectors with strong Q2 earnings should also be considered. As the warmth of the semiconductor sector spreads, defense, shipbuilding, and securities sectors were highlighted as notable performance stocks. The perspective is to include stocks based on strong Q2 performance in portfolios for the second half of the year. This emphasizes a balanced portfolio construction based on performance rather than concentrating on a specific sector.
The key events and business outlook for KOSDAQ-listed companies GC Genome and Jetema for the second half of the year were introduced. GC Genome is the market leader in fetal NIFTY testing and possesses cancer diagnostic technology. Jetema is a company preparing for a turnaround by newly entering the toxin market, leveraging its experience in filler exports. These two companies are seeking growth in the second half through their respective core technologies and market strategies.
The cloture (debate termination) vote for the CLARITY Act, aiming for U.S. cryptocurrency legislation, is scheduled for 2 PM on September 15th. Senator Cynthia Lummis announced this schedule, and the core of the bill is the separation of investment contracts and tokens. This vote is expected to be a critical turning point in resolving regulatory uncertainty in the cryptocurrency market and establishing a clear legal framework.
A debate has arisen concerning the operation of Polymarket and the fundamental principles of a democratic society. While democratic societies are based on 'one person, one vote,' Polymarket embodies a 'one won, one vote' characteristic, where those who invest more money have a greater voice. Concerns exist that this structure could lead to various problems, including insider trading and potential government influence. The core of the discussion lies in the disparity with democratic decision-making processes, as the power of money can have a greater impact on decisions.
The tokenized stock market grew significantly in the first half of the year but remains small in market capitalization and is still in its early stages. The total size of the tokenized stock market is currently estimated at around $35 billion. Particularly in the U.S. market, demand for tokenized stocks is low due to the ease of direct stock purchases. While synthetic stock models initially predominated, there is a gradual shift towards custodial models. This suggests that tokenized stocks are still in the process of establishing a stable market structure.
The Securitize platform showed quantitative growth, with assets under management (AUM) reaching an all-time high and trading volume growing by 147%. However, this platform growth did not translate into revenue, and profitability turned to a deficit. The main reason for the revenue decline was low new listings and onboarding revenue. This indicates a discrepancy between platform scaling and actual revenue generation, suggesting the need for a strategy to improve profitability in the future.
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