September Stock Market Hinges on Three Numbers

Last September, news that Iran had attacked a U.S. military base in Kuwait suddenly shook the domestic stock market. Around 1:11 PM, with the spread of the news, the KOSPI began to fall, and the market, unable to find the exact reason for the decline, was engulfed in anxiety, accelerating selling. Jang Woo-jin, CEO of Geum Si-gong, explained the situation at the time, saying, "The market suddenly shook when news spread that Iran had attacked a U.S. military base in Kuwait." Regardless of whether this news was true, the market reacted immediately, revealing its psychological vulnerability.

If demand for betting on rising oil prices had increased along with this situation, market anxiety would have intensified. However, the lack of demand for betting on rising oil prices helped the market regain stability. CEO Jang Woo-jin stated, "If, along with this situation, the demand for betting on rising oil prices had increased, it would have shaken, but there wasn't much of that," emphasizing the relative stability of the oil market.

All market participants currently feel deep anxiety. CEO Jang Woo-jin diagnosed, "All participants are anxious. So, if an issue arises, they prepare to flee. The trend of quickly buying when an issue arises is gradually decreasing." This is manifested in the market's tendency to react insensitively to good news and overly sensitively to bad news. Like the cases of Alteogen and Doosan Fuel Cell, even when positive news emerges, it is not properly reflected in stock prices, and a defensive stance among market participants persists as uncertainty remains unresolved.

Recently, with SK Hynix's stock price plummeting by more than 4%, the perception that share buybacks may not be a definitive safety net for stock price defense has spread. This has led to a collapse in individual investor buying sentiment and heightened caution across the market. CEO Jang Woo-jin explained, "Yesterday, when SK Hynix fell by 4%, we experienced that even share buybacks might not be effective," pointing out the severity of a market situation where buying agents have disappeared.

Foreign investors appear to be consistently reducing their exposure to the Korean market. Before the proportion of the Korean market began to rise significantly, it was around 32%, but at its peak, it reached the mid-to-high 41% range. Even now, after reducing the proportion significantly, it is still around 39%, meaning additional selling volume exists. Therefore, the timing of share buybacks can serve as a good opportunity for foreigners to rebalance their exposure to the Korean market.

Although the Korean won has recently strengthened too rapidly, this does not guarantee an influx of foreign capital into the Korean market. This is because not all currencies strengthened globally amid the weakening of the dollar. If there had been bets aiming for exchange rate gains, they should have moved with the dollar's weakening, but that was not the case. CEO Jang Woo-jin pointed out, "The won has strengthened too rapidly. Globally, did all currencies strengthen as the dollar weakened? That's not the case," analyzing the current market environment where it is difficult to bet on further won appreciation.

Recently, with an increase in cases of vessels operating with their Automatic Identification Systems (AIS) off being attacked in the Strait of Hormuz, the actual number of vessels passing through the strait is estimated to be decreasing. This is a direct reason why oil prices are not falling. CEO Jang Woo-jin explained, "Attacking vessels with their identification systems off means the number of ships genuinely passing through Hormuz will decrease. That's why oil prices can't go down," emphasizing that these unseen variables are hindering oil price stabilization.

The rumors of an Iranian attack on a U.S. military base in Kuwait and news of the Kuwaiti military's response were the direct cause of the short-term sharp decline in the stock market. In the past, when the U.S. intervened, Iran tended to back down, pretending defeat, but this time, the perception spread that they would not stop, shattering expectations for an early end to the conflict. CEO Jang Woo-jin commented, "It's because it became clear that Trump wasn't the one ending the war. In the past, when the U.S. acted this way, Iran would stop, pretending they couldn't win, but now they're not stopping," analyzing how this change in perception significantly impacted the market.

Iran is likely to continue creating unrest in the Middle East until the U.S. midterm elections, aiming to increase its bargaining power. This is interpreted as an attempt to pressure the U.S. to bring favorable cards to the negotiating table. CEO Jang Woo-jin diagnosed, "It's highly probable that they'll keep stirring up trouble in the Middle East before the midterm elections to say, 'Come to the negotiating table quickly. Bring me favorable cards,'" and suggested that due to this political background, high oil prices are likely to persist.

Three key indicators have been presented to signal future market inflection points. First, whether the 10-year Treasury yield exceeds 5%. Second, whether the dollar index exceeds 100. Third, whether the Brent crude oil price exceeds $100. CEO Jang Woo-jin warned, "If even one of these three—the 10-year yield exceeding 5%, the dollar index exceeding 100, or Brent crude exceeding $100—breaks through, the market impact will be very significant…" emphasizing that if any of these three indicators cross their threshold, the market could face a major shock.

A diagnosis has emerged that oil prices are no longer temporary fluctuations but have become a constant. This situation of prolonged high oil prices continues to exert inflationary pressure, and analysis suggests that it has entered a dangerous zone where it could stimulate additional economic variables such as interest rate hikes. CEO Jang Woo-jin explained, "Oil prices are no longer a fluctuating variable but have become a constant, and this situation of high oil prices continuing leads to inflation, and how this stimulates interest rates has become a really important variable," warning that expected inflation is reaching a tipping point where it could reverse.

The September market is facing a liquidity crunch. The U.S. Treasury's continuous need to replenish its TGA (Treasury General Account) balance means liquidity cannot be released. Moreover, with large-scale capital absorption events like the Anthropic listing, places to absorb liquidity continue to emerge even in a situation where liquidity is not abundant. CEO Jang Woo-jin explained, "The U.S. needs to keep filling its TGA balance, which means it cannot release liquidity, and liquidity isn't abundant, but places to absorb it have emerged," predicting that these supply and demand factors will heighten downside caution for the September stock market.