AI Momentum: Focus on Semiconductors, Nuclear Power, and Electric Power

On Saturday, September 12, at 11 AM, a seminar titled 'Making U.S. Stocks 10x in 10 Years' will be held at the Apgujeong WM Center, featuring Department Head Park Ji-hoon and Department Head Jung Woo-chang as speakers. Investors are expected to explore long-term growth strategies and promising investment opportunities in the U.S. stock market through this seminar.

Next Thursday, September 17, at 4 PM, a one-on-one online consultation on real estate and taxes is scheduled via Zoom. This consultation, led by expert Go Jung-hyun, will provide participants with an opportunity to receive in-depth advice on their individual real estate and tax issues. Interested investors can apply at the designated time to communicate directly with the expert.

Weakness in the U.S. stock market has been observed for 10 consecutive years after Labor Day, with the U.S. market declining last night as well. Geopolitical risks have further amplified intraday volatility. However, ahead of option expiration, foreign and institutional investor supply and demand show an advantage, indicating limited potential for further market decline.

International oil prices are hovering around $94, and the 10-year Treasury yield briefly surpassed 4.8% last night but is currently in the early 4.79% range. Overall, these indicators suggest limited signs of rapidly escalating macro risks. The market is monitoring oil and interest rate volatility while maintaining a stable trend.

The recent strength in domestic semiconductor Soobujang (materials, components, and equipment) stocks is attributed to the significant rise in U.S. equipment stocks last night. As demand for data centers surged, the perception of deepening supply shortages for related equipment spread, driving up prices for domestic Soobujang stocks.

With increased foundry orders at U.S. factories, expectations for full operation are growing. This has led to strength in semiconductor post-processing related stocks, including Doosan Tesna, Nepes, SNS Tech, and Hanmi Semiconductor. Rising foundry utilization rates are expected to lead to improved performance across the entire post-processing industry.

Amidst recent foreign buying in the KOSDAQ market, it is suggested that this could be a pre-purchase ahead of the launch of the second KOSDAQ-related fund scheduled for late September. Given past precedents where the market reacted strongly on the first day of fund launches, foreign investors appear to be buying related stocks in advance to prepare for market movements.

NH Investment & Securities anticipates the domestic stock market will reclaim its previous highs if interest rates stabilize downwards. Key drivers for broadening market leadership, they emphasized, include interest rate discount rates, corporate earnings, and policy. Currently, they have a positive outlook on defense, power equipment, and steel sectors in addition to semiconductors, expecting these sectors to play a significant momentum role in the market's ascent.

Some semiconductor houses are observed to be lowering their consensus estimates. This is not due to doubts about LTA (long-term supply agreements) and Vera Rubin (demand indicators) or a slowdown in hyperscalers' capex (capital expenditure) investments. Semiconductor demand itself is still considered robust, but the situation reflects increasing discomfort with currency volatility. Particularly, it is advised to avoid aggressive buying until the earnings volatility for Q3 is confirmed.

In the nuclear power sector, Doosan Enerbility is selected as the top pick. A positive factor is that the U.S. lacks the capability to construct nuclear power equipment independently and must turn to Korea. Massive demand is anticipated, with 50GW of large-scale nuclear power and 40GW of SMR (Small Modular Reactors) by 2030. Doosan Enerbility's growth potential is highly rated, with business expansion expected through investments such as in Westinghouse.

Despite a positive outlook, the power equipment sector has one Achilles' heel: its current price-to-earnings ratio (P/R) is excessively high. This indicates that valuation burdens have increased due to recent stock price surges. If interest rates rise again or volatility increases, there is a possibility that the market could brake due to high valuations. Therefore, interest rate volatility risk must be considered when investing.

Korea Electric Power Corporation (KEPCO) is currently a low PBR (Price-to-Book Ratio) stock with over 200 trillion won in debt. Entering the transmission and distribution (T&D) business is mentioned as one way to reduce this massive debt. If KEPCO takes a proactive stance in the T&D business, it could be a crucial breakthrough for improving the company's financial structure. The T&D business can generate stable profits and is considered a core business that can enhance the company's value in the long term.

SeAH Besteel Holdings owns a special alloy production subsidiary in the U.S., which has a track record of supplying to SpaceX. This subsidiary is scheduled to begin full-scale operations next year. The aerospace industry, including SpaceX, has a very high demand for high-strength, high-heat-resistant special alloys, and SeAH Besteel Holdings is expected to play a significant role in this market. Full operation next year is projected to positively impact the company's sales and profits.

A high correlation of 70-80% has been observed between the stock prices of department stores like Hyundai Department Store, Shinsegae, and Lotte Shopping, and semiconductor industry charts. This suggests that department store stock prices could serve as a leading indicator for the semiconductor industry. Experts noted that visiting duty-free shops and department stores to observe consumer trends is a simple but effective way to gauge the semiconductor industry. A surge in consumer spending is expected in Q1 next year with the payout of semiconductor industry bonuses.

Recent visits to semiconductor value chain companies indicate that Samsung Electronics and SK Hynix are not exerting as much CR (Cost Reduction) pressure on their suppliers as before. This is interpreted as a shift towards supply chain stabilization due to improving semiconductor market conditions and the increasing importance of securing technological capabilities. As a result, Soobujang companies with excellent technology that can directly secure orders from overseas big tech firms are expected to see increased momentum in their stock prices.

Ahead of the Chuseok holiday, views on market strategy are diverging. Team Leader Lee Yeok-jin suggested increasing cash holdings before Chuseok, while Department Head Park Ji-hoon believes the declines in July and August have already been priced in, anticipating a market gap-up after the Chuseok holiday. Mr. Park even expressed concern about being left out of the rally after the Chuseok holiday. Additionally, the stagnation in former President Trump's approval ratings and the possibility of conciliatory gestures between the U.S. and China are also noted as market variables.