Stock Market Declining Due to Foreign Selling… How Should We Respond?

The expert stated that many investors participating in the current market are feeling worried, but there is no need to worry excessively. He added that the market is simply in a phase of an up-and-down cycle, and the volatility at this point can be interpreted as a natural phenomenon.

The expert pointed out that the numbers seen through indicators such as ROE, PBR, and PR in the current market are at unprecedented levels. He raised doubts about whether these numbers accurately reflect the current market situation and emphasized the need to carefully examine market volatility and leverage phenomena rather than blindly trusting these indicators. In particular, he warned that volatility is decreasing slower than expected.

Despite generally good second-quarter earnings, an analysis revealed that they were not as surprising as expected due to the market's heightened expectations. The expert explained that while the semiconductor sector, especially Hynix's performance, garnered attention, it wasn't enough to surprise the market given the already high expectations. He diagnosed that market expectations have become excessively high compared to the actual growth rate of fundamentals, and that some market adjustments are occurring as these expectations are brought back to a realistic level.

The expert analyzed that market volatility is gradually decreasing as excessive expectations for the semiconductor sector are adjusted. He mentioned that as the perception that semiconductors are not as good as expected spreads, it has created an opportunity for other stocks that had been overlooked in the market to gain attention again. This shift is creating a pattern where various stocks are circulating rather than just a specific sector experiencing sharp rises and falls.

The high proportion of the memory semiconductor industry was cited as the main reason for the low valuation of the Korean market's price-to-earnings ratio (PER). The expert explained that the memory semiconductor industry generally does not command a high PER, and since semiconductors account for a very large portion of Korea's total market capitalization, this factor lowers the overall market PER. He added that the U.S. market, with its balanced distribution of various industries, has a different PER distribution and market character compared to Korea.

The current level of shareholder returns by domestic companies is considered to be performing very well given the macro cycle. The expert explained that the current KOSPI index is around 5,000 points, which has the same meaning as 2,000 points in the past. He projected that the index range between 5,000 and 5,500 will be maintained very solidly, and a break below this line would be unlikely unless the national economy faces severe difficulties.

An analysis revealed that the market capitalization of single-stock leverage ETFs is decreasing, approaching the government's target. The expert stated that the government initially hoped for the market capitalization to drop to around 5 trillion won, and it actually hit 5 trillion won intraday at its recent low. Currently, it is around 6 trillion won, which he assessed as a reasonable indication that a significant portion of leverage has exited the market.

The expert analyzed that the failure of China's CXMT to supply memory to Apple will solidify the bottom of the semiconductor market. He had been concerned about China's move to supply low-cost memory through Apple, but recent news indicates that CXMT either offered higher prices than Hynix or the supply deal fell through entirely. In the past, China's strategy of increasing 'Q' (quantity) was perceived as a threat that could lower prices and increase competitors, but with the situation not going Apple's way, this threat has significantly diminished. Accordingly, he projected that downward pressure on the semiconductor market would decrease, leading to greater stability.

Warren Buffett's recent purchase of Google (Alphabet) stock is analyzed to reflect expectations for 'internal margin' growth, similar to his Apple investment in 2016. The expert explained that in 2016, Apple successfully attracted companies to its App Store, increasing its service revenue proportion, which in turn reduced profit volatility and expanded dividend capacity. This Google investment also seems to reflect expectations that Google's internal margins will solidify as the proportion of Google Cloud's profits increases due to more companies using Google Cloud.

The news of Google AI head 'Demis' moving roles early yesterday morning is interpreted as Google's message to strengthen its commercialization strategy for Gemini AI. Considering that Demis was primarily a research-focused individual, his move from the Gemini and AI head positions to another role indicates a strong intent to translate research achievements into actual business, the expert assessed. This move is expected to have a positive impact on Google's financial performance.

The biggest reasons for semiconductor supply and demand instability were identified as leverage ETFs and the concentration in Samsung Electronics and Hynix. The expert emphasized that leverage ETFs exist not only domestically but also internationally, and there are many private equity funds that invest exclusively in Samsung Electronics and Hynix. He explained that some asset managers tend to concentrate investments in one or two stocks and maintain a high benchmark weighting, leading to an excessive concentration of market liquidity in these stocks. He warned that this concentration is the main factor exacerbating stock price fluctuations, and any other interpretation could misread the market.

The expert emphasized that NAND and DRAM should be viewed separately due to their different characteristics and the number of market players. He highlighted the difference by mentioning that China has long been involved in the NAND sector. He also analyzed that the adjustment in the U.S. semiconductor market is more of a supply and demand issue unrelated to fundamentals. He explained that an excessive buy-in followed by a selling vacuum in infrastructure-related stocks led to a supply-demand imbalance, which is not directly related to the fundamental value of the companies.

The expert suggested considering KOSDAQ stock purchases in the current market situation of deepening supply and demand imbalances. He explained that since the KOSDAQ market is relatively less active compared to the exchange market, finding undervalued stocks listed on KOSDAQ and buying them in installments could be an alternative. This is part of a strategy to pursue stable returns amid overall market volatility.

The expert stated unequivocally that it is now difficult for investors to expect the high returns experienced in the first half of the year. He emphasized the need to acknowledge the change in market character and formulate new investment strategies accordingly. He advised that sticking to old strategies in a changing market is not desirable, and investors must accept the reality that a market fulfilling their desire for high returns no longer exists.

The existing perspective on robot and physical AI related stocks should be maintained, with particular attention to the timing of interest rate reversals. The expert predicted that interest rates would reverse when Korea's growth forecast no longer rises. He advised that the current time is not suitable for investing in robot-related stocks, and it is necessary to wait for the interest rate hike cycle to conclude and growth forecasts to stabilize.

The cosmetics OEM/ODM sector was evaluated to have high potential for reduced tariff burdens and normalization of valuations. The expert explained that this sector is no longer negatively affected by tariffs, and its stock prices have fallen significantly, leading to undervaluation. While there were times in the past when it was considered a growth sector with valuations of 25-30 times, there is currently ample room for valuation normalization, making it one of the attractive sectors.

The shipbuilding and refining sectors were analyzed to have high investment attractiveness due to good performance despite low market expectations. The expert assessed that the shipbuilding sector has shown relatively good performance based on released earnings so far. In the refining sector, in particular, investors tend to focus only on oil price fluctuations and do not have high expectations, but actual earnings are much better than expected. He added that the refining sector is still undervalued and can be a positive investment alternative.

It was suggested that maintaining an overweight position in the U.S. stock market until the end of the year would be beneficial. The expert analyzed that the exchange rate is unlikely to fall further from 1,400 won, and the 'Kimchi premium' is already somewhat reflected. If exchange rate volatility is not significant, the U.S. market has an advantage over Korea in terms of earnings momentum. He projected that while the main factor for the strong Korean stock market in the first half was rising memory prices, this expectation could now transfer to U.S. big tech companies, and future realization of expectations will be more pronounced in the U.S. market.

It is analyzed that one interest rate hike is already reflected in the current U.S. stock market, but looking at the actual U.S. inflation situation, questions arose about the possibility of additional hikes. The expert particularly pointed out that the real income growth rate in the U.S. is declining. While investment is active in the U.S. economy, consumption momentum, which accounts for a significant portion of the economy, is not as strong as expected. Therefore, the overall economic momentum in the U.S. is not considered as good as Korea's, and the current interest rate situation is viewed as relatively positive for stock market participants.

It was advised that when adjusting asset allocations, a gradual approach is important rather than abrupt changes. The expert emphasized that 'all-in' investing, such as selling one stock entirely and moving all funds to another, is not desirable. He explained that it is important for investors to gradually adjust their portfolio weightings to flexibly respond to market changes, reminding them once again of the importance of diversified investment.