Investment Strategies in a Changing Economic Landscape

Pharmaceutical companies like Bayer must innovate amidst interest rate cuts to thrive in a changing market.

### Investment Insights: Navigating Defensive Stocks and Market Trends
* 📈 In light of interest rate cuts, pharmaceutical companies like Bayer must **adopt new strategies to ensure growth**, regardless of the U.S. presidential election outcome.
* 📉 South Korea's export stocks performed well until early 2024, but the growth rate is now **slowing**, particularly in the **semiconductor sector**.
* 💼 Defensive stocks, typically seen as **stable during economic downturns**, are also struggling, leading to potential **increases in value due to affected dividends**.
* 📊 As interest rates fall, defensive stocks may intersect with high-dividend stocks in sectors like **telecommunications and utilities**, including KT and Korea Electric Power Corporation (KEPCO).
* 🔍 The recently released value-up index is expected to **outperform the KODEX ETF**, focusing on companies with **high dividends and strong return on equity**, excluding loss-making firms.
* 💰 The dividend policies of major shareholders play a crucial role, as they face **higher tax burdens**, leading to **reluctance in distributing dividends**, which could impact **stock prices**.
* 🏦 Despite challenges, companies that align with government policies and demonstrate **consistent dividend practices**, like Meritz Financial, are likely to see **significant growth**.
* 🚀 The KOSDAQ's future hinges on the **relaxation of capital gains tax**, potentially allowing for **greater trading flexibility** and **improved stock performance** in sectors like biotechnology and secondary batteries.

For the representative growth stock, I believe that pharmaceutical companies like Bayer need to adopt new methods in light of interest rate cuts. Regardless of who wins the U.S. presidential election, investing in a positive direction will yield results. From the perspective of our economy, South Korea's export stocks performed relatively well until the first half of 2024. However, now the growth rate of export stocks is slowing down, and the semiconductor sector has also seen a significant decline. That said, it’s not like defensive stocks are doing well either, especially when the economy is struggling. Defensive stocks are supposed to provide stability during economic downturns, but their dividends are also being affected, which could lead to a value increase. What are your thoughts on investing in defensive stocks? I believe that defensive stocks will likely play a more favorable role than before.

I don't think defensive stocks will lead the market, but now that interest rates are starting to fall, there is an intersection between defensive stocks and those that offer high dividends. For example, this includes sectors like telecommunications, insurance, and companies like KT, as well as utilities such as Korea Electric Power Corporation (KEPCO). Although KEPCO is currently unable to provide dividends, the reason is that as interest rates decrease, the attractiveness of dividends tends to increase relatively. Previously, when dividends were at a certain level, many investors preferred growth stocks due to higher interest rates. However, there might be renewed interest in utilities and energy companies, including KEPCO, which had been somewhat overlooked. Additionally, the value-up index was released today.

Now, looking at the components, I haven't been able to see all the stocks yet; they haven't been released. However, I think the index itself will outperform the KODEX ETF. The reason is that I looked at the ROE, ranking from 1st to 50th, and the PBR from 1st to however many there are. Among these, I limited the selection to companies that have given dividends for two consecutive years or have engaged in stock buybacks and retirements. This means I excluded loss-making companies. In other words, while all stocks are included in the KOSPI and KODEX, this index is more focused on companies that provide higher dividends while also having high ROE. Therefore, I believe the index itself has some significance. Additionally, there are various policies related to dividends, and companies that increase their dividends may also be included as exceptions. So, these various policies and then...

As interest rates decrease, relatively attractive high-dividend stocks emerge. There are quite a few overlaps with defensive stocks, which I mentioned earlier. If you are considering investments that estimate indices rather than the KOSPI or KOSPI 200, personally, I would suggest that an ETF or something similar tracking the value-up index would be better than the KOSPI 200. The disappointing aspect is that the growth component is not included in that index. Therefore, for those who favor growth stocks, this alone may not suffice. The index is primarily composed of companies with increasing dividends or undervalued firms, so I think it might be significantly better than the KODEX. In conclusion, rather than estimating the KOSPI 200 index, I believe the value-up index would be a better choice. However, it is important to note that the value-up index does not include growth stocks.

Since we can't really do things like dividends, we need to invest separately. One pocket should have value stocks, and the other should have growth stocks. That ETF will come out around November, and it will be a treasure trove. It might be a good idea to buy some when it comes out. There's a common belief that when the government creates something new and related ETFs flood the market, that's the peak. Do you not see it that way? The value stocks that have risen recently are mainly in banks and insurance, while other companies haven't seen significant increases. So, unless there's a sudden spike, it's not likely to go up much. However, if the companies related to value stocks have already risen significantly, then there may not be a need to buy. Given the current situation, purchasing wouldn't be a bad idea. But even in terms of value, it's mostly financial holding companies and insurance companies.

The financial love room bus, what is it? How can we broadly expand its value? It can't be done. For that to happen, policies need to change. To summarize briefly, who decides the dividend policy? The largest shareholder decides. Originally, the board of directors makes the decision and then gets approval from the shareholders' meeting, but in reality, it just goes through. Especially in the case of large corporations, everything tends to pass. The reason I mention this is that the largest shareholders are all subject to comprehensive taxation on dividends. For us, or for you who invest, if the dividend income does not exceed 20 million won, we all pay 15.5%. However, the largest shareholders pay 46% in taxes even if they receive the same amount. Therefore, they tend to be reluctant to distribute a lot of dividends.

Yes, there are those aspects. So, that part should be subject to separate taxation, but it does not pass easily, which is the core issue. So, if today there was a discussion about whether the capital gains tax will be abolished or if it will be reduced, those aspects are also present. If capital gains are subject to separate taxation, then I think dividends and stock buybacks will increase significantly. However, that part is still a bit uncertain, which is why I mentioned earlier that it might not be feasible. So, regarding separate taxation on dividend income, even if it is raised to 25%, it would be the same for everyone. If small shareholders, major shareholders, and large shareholders are taxed equally, then for them, the tax burden is effectively halved, especially for the largest shareholders.

From the perspective of entry, this is quite paradoxical. So, those people have no choice but to be proactive. For instance, in the case of earned income, they are still subject to 46%. If I have financial income and I'm a registered director, taking 10 billion won is much less beneficial than profiting from dividends, which is twice as good. Therefore, they will inevitably increase their dividends, leading to a situation like in Taiwan, where the Korea discount disappears by 30%. However, in our country, the system does not change easily, especially with discussions about tax cuts for the wealthy, which makes it difficult. So, why is value-up still possible? Do banks and insurance companies have owners? No, they don’t have owners because industrial capital cannot demand banks. Therefore, banks tend to comply with government policies. If there are dividends, they will aggressively increase reserves and also engage in stock buybacks and retirements.

Therefore, when it comes to financial stocks, they will follow closely. On the other hand, large conglomerate holding companies will likely move much more slowly. Major shareholders who have concerns, such as those needing to transfer their businesses, tend to comply well. Additionally, companies that are currently facing issues and need to maintain a good relationship with the government will actively engage. They will raise their hands for value enhancement. For instance, there have been problems with the management of Kio and similar issues with Samsung Group, such as Samsung Life, which also needs to align more closely with the government. These groups are relatively more likely to follow government policies. Therefore, rather than expecting goodwill from major shareholders, it is more effective to focus on companies that can structurally align with government policies. Yes, that's the current situation.

Yes, yes, yes. Recently, the KOSDAQ has dropped below the 700 mark, but it has rebounded to the high 700s. Personally, I think there is an expectation that even if the gold and securities are not completely abolished, they will at least be relaxed, and I don't think there will be any strict enforcement. How do you see the future of the KOSDAQ? As you just mentioned, the gold and securities need to be relaxed for it to have any significance. The reason is that, for example, large companies like Samsung Electronics or Hyundai Motors have the freedom to buy and sell without issues. There are no problems with supply and demand, and they can easily buy and sell. However, for companies with a market capitalization of less than 500 billion won or 1 trillion won, investors who enter through securities firms find it difficult to buy and sell easily. So, they just don't buy.

So, at the end of the year, you have to sell everything and then buy again at the beginning of the year, which is a waste of energy. However, those individuals have stocks worth tens of billions, so they will be subject to capital gains tax. Even if we consider a capital gain of 100 million won, it becomes really difficult to buy and sell everything. This is why the KOSDAQ is at a disadvantage. From a supply and demand perspective, it’s easier to buy and sell large-cap companies with a market cap of 30 trillion or 20 trillion won, where the transactions go unnoticed. It feels like avoiding capital gains tax is much harder in this way, which leads to further decline. So, paradoxically, if capital gains tax is imposed or abolished, the KOSDAQ might rise a little, right? Yes, that could definitely be a factor. Additionally, the KOSDAQ itself is focused on sectors like secondary batteries and biotechnology.

Since the weight is significant, fortunately, as I mentioned several times earlier, the atmosphere over there isn't bad, so I don't think the KOSDAQ will be too negatively impacted either. The pharmaceutical and bio sectors are improving, as you mentioned earlier, and the secondary battery sector seems to be escaping the bottom, as you also pointed out earlier. At this point, are there any sectors, apart from those previously mentioned, that might be positively approached? In terms of sectors, I always believe that individuals should have five different stocks or companies with varying betas in their portfolios. As I mentioned earlier, sectors like CMO and pharmaceutical bio can also see stock prices drop. If they decline seasonally, I think it can present a buying opportunity again. Additionally, among the past leading stocks, some are still surviving.

There are some cosmetics and beauty-related industries, such as Botox and beauty devices, included in this. Additionally, there are related stocks that should be considered, especially since if the economy is bad and you empty everything out, you might miss out when things start to rise again. In this case, I believe the shipbuilding sector will be one of the key players. Compared to other sectors, I think earnings will improve here. This is because industries like steel and chemicals have been struggling due to issues with China. However, if we exclude steel and chemicals, and look at energy and refining, there are still market caps to consider. It’s important to invest in one of the industries, and institutional investors would likely lean towards shipbuilding. So, when thinking about such supply and demand, we must also consider the possibility that the economy might unexpectedly improve.

I believe that if we cover everything with the Chosun, it will be fine. Regarding semiconductors, I see it as a short-term play; when the prices drop significantly, it's an opportunity to buy, and once it rebounds, we should reduce our holdings. This requires careful observation, so I'm viewing it as a short-term strategy. Lastly, there are growth stocks or sectors that are less affected by economic downturns. As the economy slows down, these sectors experience less impact, and they still have good cash flow. Companies that offer high dividends fall into this category. While some may just have a high dividend yield, there are others whose dividends are gradually increasing. For instance, if Hyundai Motor Company maintains its earnings, they may not rise dramatically, but if they increase their dividend payout by 30% or 40%, that would lead to a 30% rise in dividend yield. These are the types of companies that can still generate profits.

There may be no growth in profits, but stock prices can still rise. This means that companies that currently provide dividends should be targeted during economic downturns or when interest rates decline. However, some people may not fully understand this. You mentioned companies that can experience stock price growth without profit growth, and that they might increase their dividend payout ratio. This could lead to a situation where stock prices rise even without profit increases. 

To explain it simply, let's consider the concept of commercial real estate. For example, I own a building and receive 10 million won in rent each month. Then, due to successful businesses like coffee shops, I manage to raise the rent to 20 million won. In this case, the company...

What will happen to the value of the building? It will increase. Yes, it may not double, but the interest rates will function the same way. If dividends increase from 200 won to 400 won, then the value should rise like the building. The stock price and market capitalization should also go up. In fact, having this concept tied to dividends is quite unfamiliar in the public sector. Why is that? It's because there are many doubts about consistently paying dividends. Therefore, when this becomes institutionalized, companies that maintain this practice see their stock prices rise significantly. Meritz Financial has demonstrated this very well. Their dividend payout ratio is over 50%. They have consistently returned over 50% to shareholders for more than three years, which builds absolute trust in them. So, there are a few companies that consistently instill this belief, and they are the ones that continue to grow.

As companies align more closely with the South Korean government's policies, suspicions regarding the national budget seem to diminish. This suggests that certain sectors may experience a differential rise. It's not just a one-year phenomenon; rather, it provides a long-term perspective. I'm curious about how, if stock prices rise in this manner, Chairman Chung Euisun of Hyundai will face significant inheritance taxes when he eventually receives shares from Chairman Chung Mong-koo. Why is that? Why is there a value increase? From the perspective of corporate governance that we have often observed in South Korean companies, Chairman Chung Euisun seems somewhat out of place, almost like an alien. What is he like? Is he the only good person? This makes it difficult for someone like me, who has seen a lot, to fully understand the situation.

It seems that the true intentions of the major shareholders are, yes, yes, yes. Now, for someone like me, if I were to receive about 30% more money, I would definitely rush to do it. However, people like Lee Jae-yong and Jeong Hee-sun both have assets worth several trillion won, and unless their family line is destroyed over three or four generations, the more important aspects for them are control, influence, and the honor of being respected. So, even if that person became the chairman thanks to their parents in that group, receiving an evaluation that they managed better than professional management is more important than seeing an increase of one trillion won. I believe one trillion won is significant; it is larger than earning several hundred billion won. The world has changed a lot. During the process of merging Samsung C&T and Cheil Industries, Lee Jae-yong has faced several trials.

We've already seen how they operate. Would someone with that much money want to go to prison? It seems that the scenario has changed. Rather, I think there are people who feel more value and fulfillment from being recognized for their management skills, respected, and contributing to the country through initiatives like supporting the national flag. I may not be in a position to say this, but that’s the impression I get. Therefore, I believe they will pay their taxes properly. The Hyundai Motor Group is tackling things head-on. They can no longer hide behind tricks, like merging here to increase the value of their shares. It's been visible for a while now; it’s been about five years since the Hyundai Motor Group tried to restructure its governance and faced immense backlash, eventually withdrawing. At that time, they aimed to make Hyundai Mobis a holding company, and honestly, I was surprised to see that.

Most major shareholders tend to push aggressively when it benefits them, but when they see the market's reaction, they often withdraw, realizing it might not be the right move. However, the Hyundai Motor Group is a somewhat unique case. We need more cases like Chairman Cho of Meritz Financial Group and Vice Chairman Kim Yong-beom. We should applaud such individuals, as their influence and prestige increase. If other chairpersons see that manipulating the market can double stock prices, even if they have to pay half the taxes later or face better conditions during M&A, they need to understand this clearly. In fact, this could lead to value enhancement. Today, look at the discussions about the U.S. economy and the controversies over economic recession; the domestic sector is buzzing with activity. I know I spoke quickly and shared a lot of information.

Yes, yes, anyway, we study together, and I also make mistakes sometimes. I keep having opinions, and when I do, please just refer to what I've said and study together. We need to continuously adapt our strategies based on data, as Paul mentioned. I believe that we should remain humble. So, while studying a lot, we need to adjust our strategies accordingly. The only thing we should hire for is that there are too many experts on the recent market conditions, which can be confusing. Some say we are in a recession, while others disagree, and it can be quite confusing. Therefore, you need to be able to make your own judgments to endure in the long run. Yes, I want to emphasize those aspects especially. I also want to thank you for preparing so much for today's discussion. Thank you for all the studying and contemplation you have done for our subscribers.

나눠 주셔서 너무 감사합니다. 그로스 1자의 김태홍 대표님이셨습니다. 고맙습니다. 아유, 감사합니다. 저는 주인이 되려면 금리 인하 기도를 해야 한다고 생각했습니다. 그때 한 번 더 뛸 수 있는 게 제학 가요라고 저는 생각합니다.

사야할 주식은 이런 겁니다 '5가지만' 알려드릴게요 / 김태홍 대표 (4부)

"지식과 자산의 복리효과" 그 길을 복길이 여러분과 함께 걷습니다.
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와이스트릿 - 지식과 자산의 복리효과

Investing in Defensive Stocks and the Value-Up Index

Pharmaceutical companies like Bayer need to adapt to interest rate cuts, while South Korea's export stocks and the semiconductor sector are experiencing a slowdown.

Defensive stocks, traditionally stable during economic downturns, are also struggling with dividends but may play a more favorable role now as interest rates fall.

The newly released value-up index, focused on high-dividend and high-ROE companies, is expected to outperform the KODEX ETF and may be a better investment option than the KOSPI 200.

Investing separately in value and growth stocks is essential, with a new ETF launching in November.

The recent rise in value stocks is mainly from banks and insurance companies, and a significant increase in their prices may not be likely.

The largest shareholders' reluctance to distribute dividends due to high taxes creates a complex situation, and equal taxation for all shareholders could potentially increase dividend distributions.

The Impact of Government Policies on Financial Stocks and the KOSDAQ

Financial stocks closely follow government policies, while large conglomerates move more slowly.

Companies facing issues and needing to align with the government are more likely to engage actively.

The KOSDAQ's recent struggles are linked to difficulties in buying and selling for smaller companies, and a potential relaxation of gold and securities regulations could positively impact its future.

Investing Strategies in a Challenging Economy

Cosmetics and beauty-related industries, along with shipbuilding, are seen as key players for investment during economic downturns.

Semiconductors are viewed as a short-term play, while growth stocks and companies offering high dividends are expected to perform well despite the economic slowdown.

The concept of increasing dividends is likened to raising rent in commercial real estate, with companies that consistently pay dividends seeing significant stock price growth.

Corporate Dynamics and Inheritance Tax in South Korea

Companies in South Korea are increasingly aligning with government policies, leading to a potential long-term differential rise in certain sectors.

Chairman Chung Euisun of Hyundai is expected to face significant inheritance taxes due to the rising value of shares from Chairman Chung Mong-koo.

The major shareholders' focus on control, influence, and respect may outweigh the importance of monetary gains, leading to a shift in their priorities and a commitment to paying taxes properly.

The Unique Influence of Major Shareholders

Major shareholders often push for their interests but tend to withdraw when market reactions are unfavorable.

The Hyundai Motor Group and individuals like Chairman Cho of Meritz Financial Group and Vice Chairman Kim Yong-beom stand out for their unique approach.

The current economic discussions and conflicting opinions on the market conditions highlight the need for individuals to make their own judgments for long-term success.