Hello, this is Kim Ji-young. It's Monday, and I will take a look at the outlook for the Korean stock market and set up some strategies. Today, I am joined by Kim Dae-jung, the head of the investment strategy team at Korea Investment & Securities. Welcome. 

Hello. Our stock market has been continuously losing the strength of foreign selling. Foreigners have been selling for eight consecutive weeks. What do you think is the reason for the ongoing foreign selling? Do you think we are in a box market? When do you expect our stock market to break through this crisis? 

First of all, the reason foreigners are selling is that the Korean market is not attractive. Compared to other markets, especially the U.S. market, it is significantly less appealing. Within this context, the poor performance of Samsung Electronics and the resulting downturn in the semiconductor industry are having a very negative impact on the Korean market. Foreigners have been selling for eight weeks.

Samsung Electronics has been selling for 27 consecutive trading days, and the scale has already exceeded 11 trillion won. The stock price is at 60,000 won. Given that Samsung Electronics accounts for over 20% of the market capitalization and represents a key industry in Korea, foreign investors who typically invest in indices rather than individual stocks may have no choice but to reduce their exposure to Korea. I believe this situation will likely continue for some time. The current market trend suggests that interest rates are not decreasing; rather, they are rising. As profit estimates are declining based on Samsung Electronics, it seems challenging to expect the market to reach 3,000 points next year. I think we will maintain a range-bound market for the time being. Today's market is characterized by such stock performance.

Therefore, we can think that it might continue. In a moment, I would like to hear some insights regarding investment strategies. The third quarter earnings season is particularly significant, as many companies will be announcing their results this week. In the United States, last week, financial stocks recorded many earnings surprises, creating a positive atmosphere. This week, major tech companies like Amazon and Tesla will also be releasing their earnings. It seems that there is quite a difference in earnings results between the U.S. and our country. The U.S. tends to produce many surprises. This is partly due to the characteristics of analysts who analyze these companies. Based on my experience, Korean analysts tend to set their estimates quite optimistically, while overseas analysts are much more...

They take a conservative approach, and as a result, there tends to be a greater surprise in performance from overseas. This time, there were various companies, but after the market closes on the 23rd, we have Tesla on the 24th and Amazon. If they also report surprising results, I think the market has room to rise a bit more. Unfortunately, as I mentioned earlier, Korea tends to be viewed more optimistically, which leads to a decrease in the surprise ratio with each passing quarter. For example, it might be 50% in the first quarter, then 50, 40, 30, 10, 20, and so on. This trend indicates a continued divergence between Korea and the United States, which is quite unfortunate. There seems to be a fundamental reason for this. Generally, while American companies are innovative and profitable, as you mentioned, it also depends on the analysts' tendencies.

There have been comments suggesting that the U.S. seems to have a lot of surprises, but still, it seems that our country's companies are somewhat underperforming and the attractiveness of the domestic stock market is decreasing. This week, there are companies in Korea that deserve attention, with significant announcements coming up. Notably, SK Hynix and Hyundai Motor Company are on the list, and I think we need to take a closer look at them. 

First of all, all eyes are on SK Hynix, which will announce its results on the 24th. This is because Samsung Electronics has reported a preliminary operating profit of 9.1 trillion won, which is quite disappointing. Therefore, there is a widespread expectation that SK Hynix needs to show a different performance. However, SK Hynix is expected to continue growing through HBM, and the current market consensus estimates that its third-quarter sales will be around 18 trillion won, with an operating profit of about 7 trillion won.

There is a high possibility that this could lead to a surprise. If that happens, revenue could increase by about 20% compared to the previous year, and operating profit might turn into a surplus. Therefore, the market generally thinks that SK Hynix could have a positive impact, especially in the semiconductor sector, particularly in HBM. If SK Hynix announces its results, do you think it could change the sentiment in the overall semiconductor market, or should we only view the HBM sector as a positive factor, as you mentioned? 

The semiconductor industry is divided into foundry, legacy, and HBM segments. Currently, the focus is mainly on HBM, driven by Nvidia, while the legacy semiconductor sector is struggling due to declining momentum from Samsung Electronics. Additionally, China is catching up with large-scale investments, making this area somewhat sluggish. Thus, it seems that attention is concentrated solely on HBM.

I think it's good. Hyundai Motor Company did not mention anything about Hyundai. I believe the company's performance in the third quarter will not be too bad. However, Hyundai's results are influenced not only by performance but also by issues related to shareholder-friendly policies, as well as long-term factors such as exchange rate changes and consumer issues in the United States. Therefore, while sales and operating profit for the third quarter are expected to be good, I believe we need to comprehensively assess whether U.S. consumer demand for automobiles and the recovery of electric vehicle sales will truly happen. As for SK Hynix, the impact on operating profit and performance seems relatively less significant. It appears that what is more important is how strongly they communicate their shareholder-friendly policies after the earnings announcement. You mentioned that shareholder-friendly policies are of utmost importance for the Hyundai Motor Group.

The sentiment regarding the overall automotive industry might change due to Tesla's earnings announcement. They will be releasing their results on the 24th. There has been disappointment related to the Cybertruck and its connection to taxis, but the delivery numbers have been quite decent overall. We should keep an eye on this. Tesla's stock tends to experience significant volatility on earnings announcement days. If the results are good, the stock could rise by nearly 10%, but if they are not, it could drop by that same amount. The expectations surrounding the robotaxi have diminished considerably. However, international sales are gradually increasing, so there is a sentiment to watch the results closely for future trends. Currently, Tesla's revenue is estimated to be around $25.4 billion, with an EPS of approximately $0.60. If there is a positive earnings surprise, it could change the narrative significantly.

The stock price is expected to rise slightly as it deviates. The leading company in electric vehicles, Tesla, has caused some disappointment with its robo-taxi announcement, and the secondary battery sector has taken a break since then. However, the upcoming earnings report from Tesla could serve as a catalyst for a rebound. We cannot predict whether it will be a surprise or a shock, but if the results are good, it could lead to a recovery in South Korea's secondary battery industry as well. I hope the secondary battery sector gains some momentum. Therefore, I am looking forward to Tesla's earnings report this week. 

Now, this morning, as soon as the market opened, the stock price of Korea Zinc began to fluctuate significantly. Today, there will be a ruling related to the buyback of its own shares, which is expected to create considerable market volatility. The media has been reporting on this, but what are your thoughts? Well, the court's decision is the most important factor.

It seems important, and if you look at the media now, it says that the decision could come as early as tomorrow. This provisional ruling is scheduled for the 20th. In the first trial, the provisional injunction was not granted, which was somewhat favorable for Korea Zinc. If the injunction is not granted again in this trial, the buying price suggested by Korea Zinc could rise further. However, if the injunction is granted and it results in a situation unfavorable to Korea Zinc, the stock price could fall very rapidly. Since this event could happen as soon as tomorrow, taking investment action regarding Korea Zinc appears to be very risky. If you currently hold shares, you might consider selling around today or tomorrow. However, approaching this situation right now is quite risky, and the potential for loss might be higher than expected, so you should be cautious.

It seems that right now, it's not about fundamentals but rather a situation where the logic of both sides regarding breach of trust and hostile mergers and acquisitions is clashing. Ultimately, the decision has to be made by the court as the referee, so it would be better to observe and respond to this rather than betting on one side. I think it might be better to lean towards selling. Additionally, this week, there are discussions in China about various economic stimulus measures, including the notable LPL interest rate cut and possibly the issuance of special government bonds. If these come to fruition, it could create a favorable atmosphere for the Chinese stock market. However, in countries like Korea and across Asia, there are concerns that the flow of funds might shift towards China, and worries about the rotation of capital have persisted over the past few weeks. How should we assess this? Yes, there is certainly a possibility of that.

In a little while, around 10 o'clock, a rate cut by China is expected. It is anticipated that the one-year loan interest rate and the five-year loan interest rate will be lowered by about 20 basis points each. The background for this rate cut is that the United States has lowered its interest rates. If the U.S. had not lowered its rates, China would not have been able to cut its rates due to concerns about the weakening yuan. However, since the U.S. has lowered its rates, China can follow suit, lowering its rates and defending the yuan as part of its strategy. This rate cut could be beneficial for the Chinese stock market. However, considering the movement of supply and demand and the ripple effects of monetary policy, I believe that the positive impact will not spread quickly to Asian stock markets, including South Korea. Ultimately, the reason for lowering rates is to stimulate the economy and revive the real estate market, which is currently very sluggish. A rebound in real estate prices has not yet occurred.

Even if interest rates are lowered significantly, it is unlikely that material prices will rise. From Korea's perspective, related sectors such as steel and chemicals may continue to face challenges, so China's interest rate cuts are somewhat separate from Korea's situation, and their influence is currently diminishing. In light of this, could you briefly suggest what overall strategy might be necessary? 

Currently, there is a high degree of uncertainty, and foreign investors are continuing to sell off their holdings. As a result, a stock market focused on specific companies is developing in Korea, making it crucial to select stocks wisely. In this situation, rather than focusing on an overly optimistic future, it is important to prioritize generating profits. Companies with high return on equity are currently favored, and I would recommend focusing on defensive sectors such as defense, food and beverage, and telecommunications.

I received some helpful insights from Kim Dae-jun, the head of the investment strategy team at Korea Investment & Securities. Thank you very much. If you want to stay informed about various economic issues, please subscribe and set your notifications. This was AI caster Kwon Mi-jung.

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