[Edaily Reporter PARK MIN ] “We expect the domestic stock market (KOSPI) to see a gradual recovery amid reduced volatility in August and September. As we approach the October earnings season, market momentum is likely to strengthen, making a strategy of gradually accumulating shares through dollar-cost averaging effective starting now.”

◇“October Earnings Season Will Be a Turning Point for the Stock Market”

Baek Chan-kyu, Head of the Asset Management Consulting Center at NH INVESTMENT & SECURITIES, made these remarks during a meeting with E-Daily on the 14th regarding the stock market outlook and investment strategies for the second half of the year. The KOSPI, which has surged sharply this year, exhibited truly unprecedented volatility, peaking at the 9,300 level in June before plummeting to the 5,200 level intraday just one month later in July. Since then, it has successfully rebounded this month and has recovered to the 6,900 level.

Rather than attributing the sharp drop in July to a “panic sell-off” caused by deteriorating investor sentiment, Mr. Baek pointed out that it was the result of rising inflation and interest rates, coupled with supply-and-demand instability, amid the exhaustion of policy and earnings momentum. In particular, he analyzed that even though the Korean stock market accounts for less than 2% of global market capitalization, the market was severely shaken by even minor fluctuations due to a sudden influx of foreign capital and the expansion of leverage.

Center Director Baek stated, “The quarterly profit growth rate of SamsungElectronics, which led the market this year, was estimated to be in the 400% range in the first quarter, the 1,000% range in the second quarter, the 600% range in the third quarter, and the 400% range in the fourth quarter; early July, when second-quarter earnings were announced, marked the peak of that growth rate,” adding “In July, with earnings momentum having already peaked, the market was shaken by the Bank of Korea’s benchmark interest rate hike and deepening concerns over inflation; amid this, supply and demand dynamics collapsed, leading to a sharp decline,” he explained.

Given that the market has already passed through an oversold zone due to the sharp decline, he predicted that volatility would gradually subside rather than see another sharp drop. Center Director Baek said, “In August and September, there are no variables—such as earnings or political issues—that are likely to significantly move the market,” adding, “In such a market, volatility also decreases, so investors will likely perceive the August market as better than July.”

He identified the October earnings season as the inflection point that will drive momentum in the domestic stock market. He emphasized, “August and September will be a period to assess the actual performance of the market’s top two stocks— SamsungElectronics(005930)and SK hynix(000660) —including their earnings, shareholder return policies, and long-term supply contracts,” adding, “Currently, there is skepticism and fear that stock prices have not yet reflected the value of long-term supply contracts, but this sentiment will improve as we approach the October earnings season.” He also emphasized that a strategy of gradually accumulating these stocks through staggered purchases leading up to earnings season is effective.

He maintained a cautious stance regarding SK hynix (3 million won) and SamsungElectronics (380,000 won) regaining their previous all-time highs. Since the KOSPI’s net profit growth rate is projected to peak this year and then slow relatively next year, Center Director Baek believes that “regaining previous all-time highs may not be easy.” According to NH INVESTMENT & SECURITIES’ forecast, the annual net profit of KOSPI-listed companies this year will surge 256.2% to 780 trillion won from the previous year (219 trillion won) and will increase further to 1,055 trillion won next year, though the growth rate will slow to 35.3%.

He predicted that whether SamsungElectronics and SK hynix will regain their previous all-time highs depends on changes in the U.S. investment environment. Center Director Baek stated, “The ultimate customers for SamsungElectronics and SK hynix are, after all, the U.S.,” adding, “If U.S. companies’ capital-raising costs decrease and they re-enter a phase of investment expansion, Korean semiconductor stocks will have the momentum to challenge their previous highs again.” He added, “This is a possible scenario if President Trump can quickly defuse geopolitical risks and alleviate concerns over interest rate hikes,” but noted, “However, this is a best-case scenario that is difficult to predict.”

◇Amid Rotation Trading, Domestic Stock Weighting Down, U.S. Stock Weighting Up in Second Half

Center Director Baek predicted that a rotation-trading pattern could continue in a market rebounding from a sharp decline, as seen recently. He explained, “The sharp decline occurred as the two leading stocks—SamsungElectronics and SK hynix—which had been driving the stock market, faltered,” adding, “Then, when a slight rebound occurs, people start thinking, ‘We should diversify a bit now,’ which leads to rotation trading.”

He advised that in a rotational trading environment, investors should evaluate stocks by distinguishing between “present value” and “future value.” He cited sectors with high “present value”—such as artificial intelligence (AI) infrastructure, semiconductor equipment, and power equipment—as those currently posting strong earnings and offering bright prospects within the next one to two years. For sectors with “future value” that can be approached based on long-term growth potential, he highlighted aerospace, defense, robotics, nuclear power, and rechargeable batteries.

In particular, he emphasized the need to focus more on the U.S. market (the New York Stock Exchange) rather than the Korean market as we move into the second half of the year. This outlook is based on the expectation that while the Korean stock market saw strong policy and earnings momentum in the first half of this year, U.S. economic and earnings momentum will take center stage in the second half. Center Director Baek stated, “The economy and earnings are bottoming out, while interest rates and liquidity are peaking,” adding, “In terms of economic and earnings momentum in the second half, U.S. companies will raise their troughs higher than their Korean counterparts.”

In particular, he predicted that policy momentum would play a significant role in the U.S. ahead of the midterm elections on November 3. Center Director Baek noted, “Consumption accounts for 70% of U.S. gross domestic product (GDP). However, consumer sentiment plummeted following the outbreak of the conflict between the U.S. and Iran,” adding, “Since no administration has ever secured re-election amid a decline in GDP, the Trump administration will likely step up its economic stimulus efforts.”

He also emphasized an asset allocation strategy for the second half of the year that involves increasing the weighting of U.S. stocks while maintaining a ratio of 40% in risky assets (such as stocks and ETFs) and 60% in safe assets (such as deposits, bonds, and IMA accounts). Director Baek stressed, “From a long-term perspective, a strategy of maintaining a 4:6 ratio between risky and safe assets aligns with Ray Dalio’s ‘All-Weather Strategy’ and has, in fact, produced the most stable results.”

However, he added that the allocation could vary depending on age and asset size. For investors nearing retirement or those in their 70s or older, he said it would be appropriate to raise the proportion of safe assets to around 80% and seek returns slightly higher than those of deposits. Baek pointed out, “While younger investors may increase their allocation to risky assets, it is not advisable to focus excessively on leveraged investments.”