More Important Than Nvidia's Earnings: PC Prices and Jackson Hole Meeting

Stock prices, interest rates, and exchange rates are cited as key indicators stock investors should check daily. These three indicators serve as the easiest and fastest basis for understanding market trends, as they encapsulate a wealth of market information. Interest rates and exchange rates, in particular, are major variables that significantly impact the stock market. It is crucial to understand the reasons behind daily news reports and changes in indicators, as this is an essential element in investment decisions.

In investing, it is crucial to establish your own investment model that identifies cause-and-effect relationships. This involves predicting how dependent variables will manifest when independent variables are given. For example, analyzing the decline in Samsung Electronics' stock price to identify the factors that influenced it is essential for developing investment ideas. Through such analysis, one can gain a deeper understanding of market movements and make rational investment decisions.

KEPCO has proposed a joint stake acquisition to Westinghouse to expand its presence in the Korean nuclear power market. Westinghouse holds critical proprietary technology essential to the Korean nuclear power business, making its importance very significant. However, Westinghouse faces strong political lobbying in the U.S. and a stringent nuclear power policy environment, leading to projections that KEPCO's stake acquisition and business expansion will not be easy. These factors act as obstacles to the overseas expansion of Korea's nuclear power business.

KEPCO's stock price is largely influenced by three key variables—oil prices, the KRW exchange rate, and interest rates—rather than its fundamentals. KEPCO's stock tends to rise when oil prices fall, the Korean won strengthens, and interest rates stabilize or decline. This is because KEPCO is directly affected by fluctuations in oil prices and exchange rates due to its import of power generation raw materials and issuance of overseas dollar-denominated bonds. In particular, excessive debt and overseas bonds place a significant burden on KEPCO's debt ratio, further increasing its sensitivity to these variables.

The stakes held by Samsung Life Insurance and Samsung Fire & Marine Insurance in Samsung Electronics are controversial concerning the limits under the Financial Industry Structure Improvement Act (Geumsan Act). The current Geumsan Act restricts industrial capital from owning more than 10% of a financial company, and Samsung Life Insurance is currently known to hold approximately 8.5% to 8.6% of Samsung Electronics shares. This stake issue is closely linked to the possibility of Samsung Electronics' share buyback. The decision on Samsung Electronics' share buyback could depend on whether the Geumsan Act is revised, which could also significantly impact the group's governance structure.

Korea's current account surplus surpassed $100 billion in the first half of this year, achieving a historic performance. This figure is equivalent to past annual records, achieved in just six months. If this trend continues into the second half, the annual current account surplus is projected to exceed $250 billion. This is a positive sign indicating a significant improvement in the external soundness of the Korean economy.

With the foreign exchange market opening 24 hours a day from July, it is curbing speculative forces in the NDF (Non-Deliverable Forward) market and contributing to exchange rate stability. Furthermore, SK Hynix's ADR (American Depositary Receipt) issuance has increased the likelihood of approximately 40 trillion KRW in standby funds flowing into Korea, raising expectations for a stronger won. In addition, aggressive shareholder return policies from major domestic corporations like Samsung Electronics are increasing demand for the won, creating structural factors that positively impact exchange rate defense.

Minister Besant's '333 policy' aimed for 3% GDP growth, a budget deficit within 3% of GDP, and an additional 3 million barrels of crude oil production. However, this policy has faced severe performance issues. GDP growth declined from 2.1% last year to 1.8% in the first half of this year, and the budget deficit expanded to 6% of GDP, exceeding the promised 3%. Additional crude oil production also fell far short of the target of 3 million barrels, reaching only about 300,000 barrels. This dismal performance has significantly eroded market confidence in the '333 policy' and caused it to lose momentum.

The Jackson Hole Meeting has been a crucial turning point for gauging the direction of the Federal Reserve's monetary policy. In the August 2022 Jackson Hole Meeting, Fed Chair Jerome Powell's strong hawkish remarks led to a 14% plunge in stock prices and a surge in Treasury yields. Conversely, the 2024 Jackson Hole Meeting showed a dovish stance, which subsequently led to three consecutive interest rate cuts. As such, the Jackson Hole Meeting significantly impacts the market, and this year's meeting is considered an event of greater importance than ever before.

Fed Chair Jerome Powell has played a role in mitigating market shocks by providing prior signals through communication with reporters. However, following the replacement with new Fed Chair Wash, there has been almost no such prior communication or guidance with the market. This means the market is struggling to understand the new chair's policy direction or stance, raising concerns that it could exacerbate market uncertainty.

New Fed Chair Wash has criticized quantitative easing policies over the past decade as misguided. Given this past stance, analysis suggests it will be difficult for him to adopt an accommodative monetary policy in the current market situation. Experts predict that if Chair Wash demonstrates a hawkish policy stance that fails to meet market expectations, the market could express considerable disappointment afterward.

Two key points to watch in this Nvidia earnings release are margin trends and market concerns about circular finance. First, it is crucial whether Nvidia's recently risen margin rate, up to 71%, can be sustained. Second, with growing market concerns about circular finance, how CEO Jensen Huang will address these and reassure the market is key. These two factors are expected to significantly impact Nvidia's stock price and the overall market sentiment.

Experts assess that the short-term importance of this Nvidia earnings announcement is low. Instead, they believe that PC price indicators, which have a greater impact on long-term interest rates that sway the market, and the Jackson Hole Meeting are much more crucial market variables. The analysis suggests that macroeconomic indicators and the Fed's monetary policy direction will hold more significance for investors than Nvidia's earnings.

In the debate over investment priority, CEO Song Jae-kyung strongly advocated for Samsung Electronics. He argued that Samsung Electronics, having fallen the most from its peak, would have a greater rebound opportunity, citing valuation and earnings growth as reasons. Nvidia shareholders, on the other hand, agreed with the opinion emphasizing Samsung Electronics' rebound potential, noting that Nvidia's stock tends to trade sideways, earning it the nickname 'Hweng-vidia' (sideways-vidia).