Kang Dae-kwon, CEO of Life Asset Management, stated in a July 4 interview that Korean stocks will experience extreme volatility for several years. The CEO attributed this to the KOSPI's nearly 100% gain this year, which forces foreign and institutional investors to reduce positions for portfolio rebalancing while retail investor participation increases. Kang, managing over 4 trillion won and recipient of the 2024 Korea Fund Awards 'Fund Manager of the Year,' noted that global markets showed minimal gains compared to Korea's surge, creating mandatory selling pressure among asset allocators.
KOSPI Daily Volatility Expected to Persist for Multiple Years
Kang stated that daily index swings of 4-5% will become routine and persist for multiple years. He explained that when the KOSPI rises this sharply, profit-taking pressure intensifies, while foreign investors and institutions must sell due to rebalancing obligations despite strong fundamentals. The CEO noted that the market is shifting toward retail investors who react to market conditions, reducing the proportion of investors who consistently tolerate volatility.
Samsung Electronics and SK Hynix Trade at PER 6-7x
Kang stated that Samsung Electronics and SK Hynix remain undervalued at PER 6-7x despite significant price appreciation. He explained that the semiconductor industry structure has changed from consumer-driven cyclical demand (PC, mobile) to long-term contracts with big tech companies as primary buyers. The CEO stated that AI token demand itself is undervalued and compared the shift to an industrial revolution, suggesting demand potential exceeds current investment levels. He stated that Samsung Electro-Mechanics trades at PER 60-70x, questioning whether its fundamentals surpass Samsung Electronics, and noted similar valuation concerns for optical communication and gas turbine-related stocks.
Korea Fiscal Stimulus and Semiconductor Bonuses to Support Domestic Stocks
Kang stated that Korea maintained relatively long fiscal austerity and expects fiscal easing starting in the second half. He stated that government-led domestic growth engines may activate, with the domestic economy potentially improving more next year and beyond. The CEO noted that semiconductor companies' projected profits approach Korea's annual budget scale, and performance bonuses from these profits may spread warmth to the domestic economy. He stated that holding company stocks trading below their asset values represent another opportunity, as many remain undervalued relative to their asset holdings.
Korea Records First-Ever Net Share Reduction While US Market Faces Dilution
Kang stated that Korea's stock market recorded its first-ever annual net reduction in share count last year, with share buybacks and cancellations exceeding new issuances from IPOs, capital increases, and convertible bonds. He stated that shareholder returns exceeded equity dilution for the first time since the nation's founding. In contrast, he stated that the S&P 500 is moving in the opposite direction, with Google and Meta conducting record-breaking capital increases for AI investment and SpaceX completing its IPO, significantly expanding total share count. He stated that Anthropic and OpenAI are also waiting to list. The CEO stated that the phrase "Korean stocks shouldn't be held long-term" and "short-term trading is effective" may now apply to the US market, while Korea's stock market can now function as a market suitable for retirement and pension assets. Regarding interest rates, Kang stated that Korea's rally is based on earnings rather than valuation, making it less immediately sensitive to rates, but cautioned that if big tech companies face capital raising difficulties due to rate pressure, it could eventually affect Korean companies' earnings cycles. He stated that Japan currently spends 20% of its total budget on interest payments alone, and even slight increases in government bond yields would require substantial portions of budgets for debt service.
FAQ
Why is the Korean stock market experiencing extreme volatility?
Kang Dae-kwon stated that the KOSPI's nearly 100% gain this year forces foreign and institutional investors to reduce positions for portfolio rebalancing while retail investor participation increases, creating daily index swings of 4-5% that will persist for multiple years.
What is Kang Dae-kwon's outlook for domestic Korean stocks?
Kang stated that Korea expects fiscal easing starting in the second half, with government-led domestic growth engines potentially activating, and semiconductor companies' performance bonuses approaching Korea's annual budget scale may support the domestic economy.
