2024 KOSPI Outlook and Investment Strategies

KOSPI's PR Below 9x and Historical Analysis

In the past 20 years, the KOSPI PR (Price to Earnings Ratio) has fallen below 9x on several occasions.
On average, it did not stay for more than 4 months, with the longest duration being in 2018, lasting a total of 8 months.
Recently, it stayed at this level for 4 months and then rebounded.

Evaluation of the Korean Market by Global Investors

Korea is perceived as an undervalued country by global investors.
It has a low valuation and a weak correlation to the stock market's performance.
Unlike the U.S. market, it may show independent movements.

Impact of U.S. Interest Rates and Economic Conditions on the Korean Market

The possibility of an economic slowdown in the second half of the year in the U.S. is being raised.
Increased possibility of interest rate cuts will ease the strong dollar, which may lead to the inflow of foreign capital into the Korean market.
If the strong dollar weakens, the Korean market may Outperform.

Stock Supply and Demand Analysis

Increasing investment proportions in domestic and overseas stock funds.
Foreign cumulative net purchases are still sluggish, while individual investors are continuously buying and then gradually decreasing.
Excessive increase in overseas investment proportions is causing a phenomenon where concentration in the domestic market is decreasing.

Importance of Dollar Assets

U.S. long-term investors basically need to hold a certain amount of dollars.
In the long term, the yen, euro, and yuan are expected to decline relatively against the dollar.
Although there is a possibility of short-term dollar weakness, holding basic dollar assets is a favorable investment strategy.

Comparison of U.S. and Korean Markets

The U.S. market may see adjustments in the hardware sector, which is centered on Big Tech.
Recent changes in AI-based investment directions have created new market opportunities.
The Korean market needs to consider economic slowdown and political uncertainty, but there are investment opportunities in certain sectors.

DeepSeek and Changes in the AI Market

DeepSeek has a different design approach from existing AI models.
Existing AI models (GPT, Gemini, etc.) have a structure that learns all data.
DeepSeek is designed to form expert groups to perform learning in specific fields.
This results in faster learning speed and cost reduction effects.
As a result, as AI costs decrease, AI is more likely to be used in more industries.

Changes in AI Investment Direction

Increasing importance of AI software and API-based service companies.
Shifting away from the existing GPU-centric approach to focus on increasing AI utilization.
Expecting benefits for software companies and device manufacturers (Samsung Electronics, Apple) due to changes in AI trends.

Outlook for Leading Stocks in the Korean Stock Market

Sectors to exclude: Cyclical stocks (chemicals, oil refining, steel), automobiles (tariff issues), some semiconductor manufacturers
Sectors to watch:
- Shipbuilding: Maintaining a duopoly with China, expanding global shipbuilding demand
- Defense: Pressure on defense spending from the Trump administration, possibility of increased military spending by NATO countries
- Power infrastructure: Benefiting from increased AI utilization and increased electricity consumption
- Semiconductors: Continued growth of HBM-related companies (memory semiconductors)
- Bio: Growth of biosimilar and CDMO-related companies
- Software and Entertainment: AI application companies and global content-related companies

Investment Strategies

U.S. Market: Long-term investment recommended, focusing on indices such as the S&P 500
Korean Market: Need for a differentiated approach with individual stock plays
Focus on growth sectors (software, bio, defense, etc.) amid the economic slowdown
AI-related trends will continue, but reliance on semiconductors and hardware may decrease

KOSPI PR Below 9x Record: Historically stays for 4-8 months and then rebounds
Global Investor Perspective: Korea is an undervalued country with potential for further upside
U.S. Economic Slowdown & Interest Rate Cut Possibility: Expecting inflow of foreign capital if the strong dollar weakens
AI Trend Change: Drop in AI costs due to the emergence of DeepSeek, benefiting software and platforms
Leading Stocks in the Korean Stock Market: Shipbuilding, Defense, Power Infrastructure, Semiconductor HBM, Bio, Software
Investment Strategy: Long-term investment in the U.S. centered on the S&P 500, selective stock-specific investment in Korea

[More…]

"Korean Stock Market Outlook: Investment Strategies for the Second Half of 2024" → https://nextgeninsight.net/?s=%EC%A6%9D%EC%8B%9C
"AI Innovation and DeepSeek: Changes in the New AI Era" → https://nextgeninsight.net/?s=AI

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The Impact of US M2 Increase and Trump's Financial Deregulation on Asset Markets

Increase in US Money Supply (M2) and Recent Changes

US M2 is a key economic indicator released at the end of each month, representing the amount of money in circulation.
After an unprecedented tightening over the past two years (2022-2023), M2 has been rapidly increasing in 2024.
The current rate of M2 growth is the fastest in the last two years, signaling a significant change in economic conditions.

Expectations for Financial Deregulation Under Trump

Trump's policy stance is deregulation, which is likely to positively impact financial and asset markets.
Although the Federal Reserve (US Central Bank) has frozen interest rates, Trump is pursuing policies to inject money into the market through easing lending regulations.
If financial regulations are eased, lending will be 활성화되고, further increasing the amount of money circulating in the market.

Uncertainties of Inflation and Trade Wars

As the increase in M2 and the speed of capital outflows accelerate, concerns about inflation (rising prices) increase.
Trump's tariff policies (additional tariffs on China, semiconductors, and other sectors) are factors that increase market volatility.
These factors may make it uncertain when to respond to inflation and lower interest rates.

Responses of Major Asset Markets

Strong Inflation Hedge Assets: Assets such as gold, silver, and Bitcoin are maintaining their strength, with precious metals-related ETFs and cryptocurrency-related stocks particularly strong.
Changes in the Stock Market: Financial stocks are strong amid expectations of deregulation, with fintech-related companies and ETFs on the rise.
Surge in IPOs: The number of newly listed companies on the NASDAQ exchange is increasing (up 136% year-over-year), as companies anticipate a strong stock market and proceed with IPOs.

Growth of Financial Stocks and New Listing Boom

Financial stocks are likely to benefit from increased money flow and expanded lending.
The proportion of fintech-related companies among newly listed companies is high, raising expectations for the growth of fintech and financial technology (stock trading, digital banking, etc.).
Major financial stocks: Goldman Sachs, JP Morgan, Wells Fargo, Bank of America, etc.
Financial stocks showed strength during Trump's first term, and a similar trend is expected in his second term.

Trump-Friendly Assets (Cryptocurrencies and Fintech)

As Trump pushes for financial deregulation, regulations on the cryptocurrency and fintech industries are likely to be relatively eased.
More than 10 US states have recently proposed legislation to purchase Bitcoin as a strategic asset.
Prospects for 활성화되고 Bitcoin and cryptocurrency ETFs (BlackRock, Grayscale, etc.)
Musk is also planning to introduce fintech features (remittances, payments, etc.) to Twitter (X).

US Stock Market and Investment Opportunities

As the greed market is likely to continue, financial stocks, fintech, and cryptocurrency-related companies are likely to remain strong.
Financial ETF: XLF (representative financial stock ETF)
Need to pay attention to cryptocurrency, fintech-related stocks, and ETFs.
Increased market volatility is possible due to the possibility of long-term interest rate cuts and continued uncertainty in trade wars.

< Summary >

The rate of increase in US M2 (money supply) is the fastest in the last two years.
Expectations for financial deregulation, a key feature of Trump's policies, are having a major impact on the market.
Increased volatility is expected due to the possibility of rising inflation along with trade wars.
Financial stocks and fintech-related companies are showing strength, and new listings (IPOs) are increasing.
Inflation hedge assets such as cryptocurrencies and gold are maintaining their strength.
Continuous monitoring of financial stocks, fintech, cryptocurrency-related ETFs, and individual stocks is necessary.
Short-term adjustments and risk management are necessary as market volatility is likely to be high.