Now, the first week of September is coming to an end, and I wonder how September will turn out. In fact, August had some fluctuations, but in the end, it wasn't too bad; it recovered. Will September follow the same pattern, or will it show a different side? We have a person who has returned with great faith, the Deputy General Manager of Daishin Securities, Lee Kyung-min. How are you doing? You must be around the level of a Vice President now. Welcome! How have you been? 

What are you doing these days? Are you the Deputy General Manager or the Manager? Ah, you’re the Manager. Oh, really? That’s not right; the position seems to have gone up quite a bit. I feel like there should be more of a presence. That's a company line, right? 

So, we are here with Lee Kyung-min, the Manager of Daishin Securities. September is typically not good, right? It has been bad every year. Let me show you a picture; the image below is of the S&P 500.

Whether you look at the period after 2000, after 2010, or after 2021, September has consistently been unfavorable. Particularly after 2021, the average return is -6.3%. The red dot at the bottom of the three-year chart shows that the probability of a rise in September is quite low. The blue chart shows the returns, and the one in the middle represents the average returns since 2010, which also indicates that the rise in September is below 50%. Even looking back to after 2000, the return in September is the lowest, and the probability of an increase is also the lowest. Why is that? This is a phenomenon. When we look only at the phenomenon, it seems that many people are making predictions based on it these days. In my opinion, rather than judging the reasons behind it, it is treated as a phenomenon. For example, if it is a phenomenon, it might indicate a certain percentage of decline. But if a phenomenon has no reason behind it, we should just acknowledge it and move on.

After looking into a few things, especially since 2021, emerging markets in the US, including China and South Korea, have all shown similar trends. In September, it's like this. But there's something to consider; for example, when Warren Buffett starts buying Ulta Beauty, and then Ulta Beauty's stock goes up, we can't tell if it's because Warren Buffett made a smart investment or if it just went up because others started buying it after him. It's uncertain, right? So, the question is why the probability of an upward trend is low or why it might drop. It always seems to be like that. If there are a lot of funds betting short in September, the results could reflect that. But I think there are reasons behind it. Please show me a picture. The picture above shows the net liquidity, specifically the RRP in the Fed's total assets.

The government has withdrawn deposits, and if you look at it, it has been flowing the same way until 2023. When it goes up, it's an increase; when it goes down, it's a decrease. If you look at the red line, the NASDAQ and S&P 500, they show almost the same account. There is liquidity, and then there are yields, but this year has gone a bit differently. The reason for this is that while there was the power of liquidity, many investors have become more sensitive about whether we are in a recession or not. I think the nature of the market has changed to some extent. What I mean is that while it has been a liquidity-driven market, I think we are in a process of transitioning to an earnings-driven and macro-driven market. However, even this year, whenever liquidity has tightened, the market has faced corrections or sharp declines. If you look at the lower part of the chart I showed earlier, you can see when net liquidity decreased significantly: in April, June, and September.

December is the end of the year, so let's set that aside. In April and June, we pay income tax, and in September, we pay property tax. Therefore, there are some overall effects that reduce liquidity in the market. This means that a market that was previously abundant in liquidity will experience fluctuations, particularly in April. The liquidity is somewhat contracted, but why does September see such a significant impact when April, June, and September all experience similar reductions in liquidity? In September, there is a saying in the New York stock market: Sell Rosh Hashanah and buy Yom Kippur. Rosh Hashanah refers to the Jewish New Year, while Yom Kippur is the Day of Atonement. This typically occurs from mid-September to early October, marking the Jewish New Year.

It is scheduled. Yes, then to put it the other way around, from the perspective of Jewish investors, the latter half of September feels like the end of the year. Did the Rothschilds sell? I don't know about that. So, from the perspective of Jewish investors, the latter half of September creates an atmosphere of wrapping up the year. This is one of the reasons why there are many closings in September and October. I think this is somewhat related. This year, the Jewish New Year falls between October 2nd and October 4th. There are two recurring patterns every year: corporate tax payments and the Jewish New Year. Because of this, in September, overall liquidity tends to be somewhat constricted, leading to a market that is sensitive to bad news and somewhat indifferent to good news. What I mean is, since it’s the end of the year, if there have been profits, people want to secure them, and if there have been losses...

I want to dispose of it quickly, and in this situation, if the market declines, there is a strong tendency to want to sell quickly. So even if there is a rebound, they sell, and if there is a correction and bad news comes out, they sell even more. This trend has led to the conclusion that since 2000, the U.S. stock market has been particularly sluggish in September. If, for no other reason than these, people are selling in September, I will execute large-scale investments in September. Because the concept of an appropriate price becomes meaningless. There is a price that should be reached, but if in September, after things like closing, everyone is saying, Let’s sell, let’s sell, hurry up and sell, then the prices will become cheaper, right? That's right. I want to buy in September. Exactly. So, I’m saying I want to buy at the end of September or the beginning of October.

You came to seduce me, but I won't fall for it. So, the reason I mentioned being cautious about the outlook for September is that there will be buying opportunities at the end of September and the beginning of October. We need to secure some cash in preparation for that. I'm not saying that from now on, September will just keep declining. If you look at the chart I showed earlier, you only saw September, right? Now, let's look at October, November, and December. The best time of the year is October and November. So, if there is a correction at the end of September and the beginning of October, that would be a buying opportunity. That's why I suggested being a bit cautious in September. I'm not saying that from now on it will keep falling; that's not the case. But to be honest, since the beginning of the year, there have been noticeable trends.

I didn't expect it to be like this. Yes, so honestly, the ISM manufacturing index and the employment indicators have rebounded, right? However, the new orders index has dropped, which has caused a setback. I feel like these days, it's like playing soccer while constantly moving the goalposts. Is the economy in a recession because employment is bad? No, employment is fine. Is it a recession because new orders are bad? And then looking at other factors, it's like, no, no, is it a recession? I keep getting this feeling. So, at this point, it seems like the market is trying to steer opinions regarding the interest rate cuts ahead of the September FOMC meeting. I wonder if this is a bit excessive. It's quite a market sentiment, isn't it? Yes, yes. So, how about that? We had in August...

One of the reasons for the sharp decline at the beginning was the manufacturing sector, as you mentioned earlier, but there was also the interest rate hike in Japan. Japan plans to continue raising interest rates in the future, right? The direction is upward, correct? Yes, that's right. Considering the possibility of it acting as a negative factor again, I suggested being cautious until late September. I mentioned reducing our exposure before Chuseok because right after Chuseok, at 3 AM, there will be an FOMC meeting. And the next day, at 3 AM on the 19th, there is another FOMC meeting, followed by a BoJ meeting on the 20th. Additionally, on the 27th, there will be the Japanese Liberal Democratic Party leadership election. Yes, that's right. I think we need to observe how these three events will impact the market. If you could show the chart, that would be great. The chart above is currently...

The candidates for the LDP presidency are currently competing, and the one in first place is continuously discussing interest rate hikes. However, what I've mentioned before is that political events or issues do not determine market trends. One thing that surprised me this time was why there was an interest rate increase during the July BOJ meeting; I couldn't understand it. If you look at the text below, Ueda, the BOJ governor, made a statement during the hearing, which I have highlighted in red. He mentioned that he would maintain communication with the government and Kim Mi-ran. This is similar to when the chairman of Power Run said he would maintain communication with Biden and Kim Mi-ran. But it seems there is no problem with this. Therefore, during the July FMC, it seemed that all politicians came out and confirmed that there would be interest rate hikes and normalization of monetary policy, which seemed to resonate. So this time as well...

I think the Liberal Democratic Party's presidential election might have some influence on the situation. In my view, if the yen weakens this time, there is a possibility it could drop to around 140. However, I don't think we will see a shock similar to early August. What I mean is that when you talk about breaking the yen, you are referring to levels around 135 or 136, which are indeed possible. Nevertheless, I believe that it won't be a shock like early August. The reason I say this is that if you look at the chart above, foreign non-commercial positions have turned to net buying. Although we can't precisely know how much has been liquidated, we can understand how strong the yen's appreciation momentum has been from mid-July to early August.

If you look at it, in 2021, when it was around 100, the net buying was 55,000 contracts. Over the course, it increased to 184,000 contracts sold, which happened over four and a half years. During those four and a half years, about 230,000 contracts were built up in sales, and it took six weeks to reverse 200,000 contracts. So, from the end of July to the beginning of August, the bets against the yen were reversed at a very fast pace, indicating a strong pressure. During the four years of the pandemic, the dollar was indeed very strong. To put it simply, although it might not be the case, wealthy asset holders in Japan had been buying dollars for four years, and they dumped everything in just six weeks. This caused quite a stir in the stock market. Now, if we assume that the yen's strength continues to increase, what will happen to the prices?

Because it is weak, movements may be large, but the changes in positions are not expected to be that significant. Historically, when looking at the 200,000 contracts, Max had 90,000 contracts, so even if it goes up by another 70,000 or 80,000 contracts from here, it would still be less than half of what it has risen to so far. Therefore, I would say the intensity of the shock is limited. Another point is that there was a somewhat similar phenomenon in 1998. If you look at the chart below, the blue line represents the dollar rate. There were two shocks in the dollar and two shocks in the Nasdaq. However, the second decline in the yen was greater. Yet, there wasn't a significant difference in the stock market's bottom. Moreover, the more important thing is that these sell-off assumptions, which involve liquidity issues and supply-demand issues, will be resolved over time. So, after these two shocks, when the yen strengthened, it developed further.

The stock market has not been a concern. It hasn't had a significant impact on the supply and demand dynamics. As I mentioned earlier, as we move through September, the market has reflected various negative factors. Additionally, the liquidation of carry trades seems to have been somewhat resolved, so I think we might see a more favorable market until the end of October and November. Therefore, although it's a bit disappointing, I believe it would be wise to reduce our stock holdings before the Chuseok holiday. Around the end of September or early October, we might see some movements, perhaps after the FOMC and BOJ meetings. We should observe the market trends after the Chuseok holiday and look for buying opportunities. However, when I look at the domestic market these days, it seems that institutional investors have already made their adjustments. I wonder if it's too late for individual investors like us to start making adjustments now.

Is it right to do this before Chuseok? What do you think? I believe it should be done even now. What will you do? For investors, from my perspective, if the KOSPI rebounds to around 2,650 or 2,700, there will be room for a decline of about 150 to 200 points again. So, we should prepare for that. I don’t know, but anyway, for those who believe that 2,500 or 2,400 will just hold on while looking toward next year, that is also a choice. However, from my standpoint, managers, especially those in hedge funds, need to buy and sell a bit. For them, there might be a short-term rebound next week, but that would be an opportunity to secure some profits in cash. After the Chuseok holiday, there will definitely be opportunities, so let's try to catch the timing then.

What I want to say is that when it was down 30%, if it rises to about 20% down, you feel a little happy, right? You think, Oh, that's a relief. Then you start to wonder if you should sell it now. At that point, you should really take to heart what our manager, Lee Kyung-min, said. You can hold on now, but later it might go down to -50 again. Even if it does, it can eventually go back up, so that's fine; you don't need to worry about it. However, if it goes from -30 to about -20 or -15, it might be a good idea to reduce your holdings or tidy things up a bit. There will be opportunities later to buy at better prices, and missing out on that could also be seen as an opportunity cost.

It's about making a choice or thinking carefully. I know it's good advice, but after hearing it, what should we do now to reduce the weight? There are not many options available; everyone has about 50 stocks. Some stocks might be down 50% or 70%, while others are almost at break-even. Overall, we could consider reducing by about 30% or even 10%. For those that are down by 50%, it seems like they might not have a chance of recovery, so we could just eliminate them. This way, we can reduce the number of stocks we hold or lower the overall weight. Alternatively, we could cut down on the stocks that have risen a bit while keeping the ones that have dropped. There could be various strategies, right? Can we get some help with that?

It seems like there is a lot of fluctuation in the market. When it rises significantly, it tends to fall again. I wonder when it will rise again. A representative example of a sector that was performing well for a time is the machinery sector. Yes, that’s right. It fell quite a bit last year and even into the first half of this year. During that time, the secondary battery sector also dropped significantly, but it has recently seen some rebound. So, I think about maintaining a cautious approach until the trend is determined. For those stocks that have been holding steady at the bottom, if you have managed to hold on until now, it might be better to wait a bit longer and sell when there’s a rebound to clean up your portfolio. Additionally, I believe it would be wise to reduce positions in stocks that have risen significantly, as many investors are saying they should buy those. For example, one sector that showed a clear bullish trend is...

It's a car, right? Yes, it has come down quite a bit lately. Oh, and I really prefer semiconductors and mention them as my top sector, but semiconductors have also risen dramatically and then come down. There are many stocks that are trying to break the low point from August. So, right now, it's okay to hold onto those that have come down or even consider buying, but for those that have gone up significantly, I think it's better to reduce your position or, if you want to buy, to wait a little longer before doing so. Recently, the most popular sectors have been bio, cosmetics, AI, and power devices, among others. Power devices have peaked and are now in a decline. That's my observation. As for secondary batteries, I won't sell them from last year onwards. Right, so they are high.

Those who have been holding onto their stocks say it's an unavoidable choice. So, I think secondary batteries are likely to rise a bit more. At least, I expect them to go up compared to now. When we look at the upward trend expected for next year, I believe they will increase further. Among the stocks you mentioned, there are still a few that haven't dropped yet. Yes, for pharmaceutical buyers and others, it might be better to reduce their positions a bit. Also, among financial stocks, there were a few that showed a rebound recently. Rather than holding onto those, I think it might be wise to reduce them and reassess. Another point is to consider how undervalued the stocks are in relation to their earnings. If we look at how much the stock prices have fallen relatively, semiconductors, automobiles, and machinery keep coming up as common themes. So, while there was significant interest from people, those sectors have now dropped quite a bit.

The situation is that the trend has not been broken. Therefore, in a situation where the upward trend is maintained, there are industries that have risen and then come down, such as semiconductors, automobiles, and machinery. Some have come down after rising, and there are those that are in a trend right now. In that case, it would be wise to reduce their weight, as there will be opportunities to buy again when they experience a correction. I believe it’s essential to pay attention to those that are falling significantly right now, while it might be better to reduce exposure to those that have risen. Many people think of cash as something to hold onto and consider withdrawing completely, but cash should also be viewed as an investment. It's important to understand that cash is indeed an investment.

So, I'm slightly shifting my investment portfolio. And while we're talking, you mentioned maybe holding onto more secondary batteries. But don't think that secondary batteries will just suddenly skyrocket; that's not the case. The statement that secondary batteries will go higher is meant for those who already own them, advising them not to be too shaken. If you don’t have any and suddenly hear that they’re going up, that’s not the way it works. Right now is the time for holders. 

As for my personal experience, I'm almost at a guru level; I don't need to say much more. I don't think it will be easy for you to find such opportunities. Looking at a few sectors, that's the situation. Yes, I'm observing that. Now, as we look ahead to September, or maybe October, and toward the end of the year, what’s most important to consider is...

We need to heighten our sensitivity and focus on various areas, but I believe the most urgent matter to grasp is the core of the economy. First and foremost, I think it's necessary to maintain a central perspective on the economy. Economic indicators fluctuate based on results, and it’s difficult to determine who is predicting a recession. Personally, I still believe the possibility of a recession is quite low and that the likelihood of a soft landing is high, but I could be wrong. In such cases, what can help us maintain our focus is the GDP data coming from the Atlanta Fed. We should continuously follow that. Currently, the GDP growth forecast for the third quarter remains at 2.1%. Yes, it is true that there has been a slowdown to 3%, but that does not necessarily indicate a recession. Many people might find it beneficial to observe changes in consensus from sources like Bloomberg.

There are many people who find this difficult, so let's look at the GDP Now, which is continuously updated. This is because the economic indicators are updated as they are announced. By looking at this, you can gauge the likelihood of a recession that people are talking about and how much the market reflects it. 

As for the GDP Now, the second point is something you should check, but you might be able to understand it by looking at some data. It seems to be a matter of whether the 12-month leading EPS will rise or fall. If we look at past trends, especially in the case of the KOSPI, the market has never experienced a downward trend while the 12-month leading EPS was rising. However, we don't see that trend yet. This is because the profit growth rate for 2024 is projected to be 90%, and for 2025, it is 25%, and for 2026, it is 10%. If we look at it based on the leading EPS, according to the current consensus, it could rise until the end of 2025.

Of course, there will be changes. However, since the stock market has already fallen, it is still insufficient to say that the leading indicators will decline. If we were to worry, we would see a decrease in profit growth in 2026, indicating that there will be a downturn somewhere in 2025. Therefore, I suggest looking at the data regarding the profit growth rates for 2024 and 2025, as well as the leading EPS, to see what trends they indicate. This way, you can determine whether the current trend is downward or if the upward trend is still valid despite the market's significant decline, and whether valuations are low. 

As for where to find leading EPS, there aren't many practical sources available. You might not find free resources, but each securities company has quant reports that are published weekly. Most securities firms provide this information.

I will provide updates in units. If you keep an eye on that, you will see whether the performance is improving or declining. During each earnings season, you can continuously update yourself on whether this performance is good or bad. The reason I mentioned GDP performance is that, as you saw earlier, the flow of liquidity and the stock market has been somewhat different. Right now, it seems to be a macroeconomic market; if the trend of earnings does not change direction, I believe the market can recover at any time. The most important thing to watch is the GDP, and you can see that there. Then, take a look at the leading EPS as well. Also, please check out Global Money Talk. There is now a channel in the U.S. that provides the most accurate real-time information about market conditions. I will definitely take a look at Global Money Talk.

Please subscribe, and I will subscribe as well. How have you been lately? Are you healthy? I haven't caught a cold much; I don't usually get colds. Health should be maintained when you're healthy. It's not a time to be overconfident about health. Understood. Our company, Samjin Pharmaceutical, has the booster shots. I can't provide the boxes today. I think we can share them one by one. We have exactly three left. Oh, we have exactly three left. Thank you. Please take the booster shot and I hope you have a great day today. Thank you. Thank you. Now, we will send off Manager Lee Kyung-min here. We need to pass it over to the opening bell live. Let's eat this and then pass it on. Yes, yes, we will eat and pass it on. It’s really exciting. We will see you again on Monday morning.

Global Monitor, please be sure to subscribe, and we will see you on Monday. Thank you, thank you. With the careful guidance of investment masters Park Geun-young, Lee Seon-hyuk, and Yeom Seung-hwan, develop healthy investment habits. Check it out on the 3Pro membership in the 3Pro app.

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