The stabilization of the US semiconductor index and the strengthening of corporate shareholder return policies are expected to drive KOSPI's rise despite foreign selling.
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The market is currently anticipating major economic events, including Nvidia's earnings announcement, the Jackson Hole meeting, and the release of PC (PCE) inflation data. These events are expected to be critical turning points determining the future direction of the market. Investors are closely monitoring each indicator and policy announcement, showing cautious investment movements.
The Philadelphia Semiconductor Index showed high volatility of over 5% in July, but in late August, volatility stabilized to 1-2%. This is attributed to the increase in margin requirements for single-stock leveraged ETFs, leading to the dispersion of funds into KOSDAQ or other stocks. This reduction in volatility contributes to overall market stabilization.
Global fund managers tend to adjust their weightings within the MSCI Emerging Markets Index through portfolio rebalancing. For example, if new semiconductor companies like China's Changxin Memory or Yangtze Memory are included in the index, they may reduce their holdings in existing companies such as Samsung Electronics, SK Hynix, and TSMC to accommodate the new stocks. This suggests that foreign selling of Samsung Electronics and SK Hynix may not be due to a deterioration in corporate fundamentals, but rather a temporary supply-demand adjustment caused by index inclusion. Such selling can be seen as a natural phenomenon occurring during portfolio readjustment for the inclusion of new stocks.
Major semiconductor companies such as Samsung Electronics, SK Hynix, Micron, and SanDisk are actively implementing shareholder return policies. Amidst this trend, Nvidia is also highly likely to announce a shareholder return policy within this year. In conjunction with institutional investors' strategies to pursue excess returns, Nvidia's shareholder return policy could influence other companies, creating a ripple effect that spreads pro-shareholder policies across the board.
Current foreign outflows are analyzed to be due to temporary external factors such as Middle East issues or US interest rate uncertainty. However, once Samsung Electronics and SK Hynix begin actively pursuing shareholder return policies, the market sentiment is likely to reverse, leading to a shift towards foreign buying. Considering that major companies' free cash flows are increasing, the possibility of long-term foreign capital outflow is deemed low.
At the Jackson Hole meeting, it is unlikely that any groundbreaking policy changes that could shake the market will be announced. This is because policymakers are expected to maintain their principled stances, considering political situations such as the US midterm elections. Therefore, this meeting is expected to feature remarks primarily focused on diagnosing the US economic situation based on data, and it is not anticipated to cause sharp market volatility.
According to a Samsung Securities report, the probability of entering a stock bear market due to macroeconomic factors within the next 6 months to 1 year is low. This is based on the analysis that the US economy has been in an expansionary phase for 75 months, and economic recession is not merely a function of time but determined by policy factors. In the current situation, where macro financial imbalances and strong central bank tightening policies are absent, a bear market is deemed unlikely.
While the possibility of entering an economic contraction phase and the increasing debt of global big tech companies are being observed, it is assessed that these debt issues are not severe enough to spread to the banking sector, as was the case with the 2008 subprime mortgage crisis. In other words, while debt growth is a fact, the risk of it escalating into a systemic crisis across the financial system is low.
Some figures, such as Cathie Wood, have put forth opinions to reduce semiconductor holdings, and bubble theories have been raised by past crisis forecasters. However, a positive outlook on profit growth dominates the semiconductor industry. While diverse market views exist, it is necessary to maintain a positive investment perspective given the high probability of increased profits for semiconductor companies.
The foreseeable target index for KOSPI until next year can be set at 9,000 initially, and then 10,000 to 12,000. These figures reflect the current positive market trend and the outlook for improved corporate earnings. Such target indices provide investors with a long-term investment perspective.
The KOSPI correction in July is analyzed as an unusual phenomenon influenced by single-stock leveraged ETFs. This can be attributed to the interplay of institutional factors to prevent fund outflows from asset management companies and the extreme FOMO (Fear Of Missing Out) phenomenon at the time. Therefore, the July correction is interpreted as a result of specific institutional factors and investor sentiment rather than fundamental market problems.
According to Samsung Securities' analysis, KOSPI is currently in a severely undervalued territory. This is based on the expectation that the discount factors for semiconductor stocks will be resolved and doubts about structural growth will be dispelled. The low PER compared to the MSCI World Index further highlights KOSPI's undervaluation appeal, and the prevailing view is that an investment strategy centered on accumulating Samsung Electronics and SK Hynix is valid. KOSPI and Samsung Electronics are judged to be forming a short-term bottom.
Free Cash Flow (FCF) is calculated by subtracting CAPEX investment costs from net income, making it a crucial indicator of a company's financial health. One of the significant factors that allowed big tech companies to endure the COVID-19 pandemic was their abundant free cash flow. Currently, these companies are accumulating cash even after investments, further stabilizing their financial structures, which is expected to have a positive effect by reducing their reliance on external financing.
Recently, the trend in corporate shareholder return policies has shifted from simply repurchasing and holding treasury shares to canceling them. Treasury stock cancellation has the direct effect of increasing per-share value by reducing the number of outstanding shares, and cancellation announcements carry legal binding power, thus garnering high market trust. Major companies like Hyundai Motor and SK Hynix are clearly demonstrating their commitment to enhancing shareholder value by announcing such aggressive treasury stock cancellation policies.
As seen in Hyundai Motor's treasury stock cancellation case, shareholder returns have now become a significant market trend rather than just a corporate issue. As companies' free cash flow increases, the trend of expanding shareholder returns based on this will intensify. Securities firm reports, such as those from Mirae Asset Securities, support this trend by providing criteria for selecting potential companies with abundant free cash flow and the capacity for shareholder returns.
In the past, the market atmosphere demanded M&A-focused investments, but now the demand for shareholder returns is growing. However, for sustainable corporate growth, there is a call for a balanced strategy: distributing half of net income to shareholders and appropriately utilizing the other half for future investments. Shareholders also need to recognize the importance of long-term investment for corporate growth, not just short-term returns.
As the net income and free cash flow of manufacturing-based companies listed on KOSPI improve, the visibility of their shareholder return policies is expected to increase towards the year-end. The government's policy stance is also likely to continue supporting the shareholder return theme, which is a factor that anticipates passive fund inflows driven by corporate shareholder return announcements at year-end. This trend could lead to positive stock price movements for KOSPI-listed companies.
Shareholder return policies are a necessary condition for enhancing corporate value, but the ultimate sufficient condition lies in a company's ability to generate profits. Companies with consistently increasing free cash flow are highly attractive investment targets in the current market. Therefore, rather than being fearful of short-term stock price volatility, it is effective to focus on a company's intrinsic profit growth and robust free cash flow for a long-term investment strategy.
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