"The market that used to generate profits solely from AI and semiconductor stocks is changing," said Shin Eol, head of the investment strategy team at Sangangin Securities. He noted that since July, the investment trend in the stock market has shifted significantly. Unlike the previous focus on AI and semiconductor stocks, many investors are now seeking strategies to survive in a more volatile market.
In an interview on August 4, Shin explained that during the first half of the year, discussions about bonds or parking products were often met with skepticism. Investors were primarily focused on maximizing returns through stock investments. However, as market volatility has increased, interest in products that can mitigate this volatility has surged since mid-July.
Shin identified parking-type exchange-traded funds (ETFs) and ultra-short-term bonds as key investment options. These products allow investors to earn interest while waiting for the right time to buy stocks, reflecting a trend toward more cautious investment strategies.
He emphasized that in a volatile market, the role of bonds should focus on securing liquidity rather than just yield. Instead of holding cash for stock purchases or deposits, investing in ultra-short-term bonds can provide stable interest income while allowing investors to respond to opportunities.
"Investing parking funds in bonds is meaningful as it generates returns compared to simply holding cash, while also allowing for a shift to other assets when needed," he said. Investors can adjust their stock and bond allocations based on changing yield expectations, reducing stock exposure when bond yields rise and increasing it when bond yields fall.
However, Shin pointed out that frequent trading of bond ETFs may not be advantageous due to transaction costs. He noted that for investors planning to hold bonds for a month or three, the utility of ultra-short-term bond ETFs is high, but if the plan is to hold funds for just a week, it may be better to keep them in cash.
Interest rates are a crucial factor in bond investment. Sangangin Securities anticipates that the Bank of Korea will raise the benchmark interest rate once in the fourth quarter of this year and again in the first half of next year, reaching 3.25%. There is also a possibility that the final rate could rise to 3.50% if geopolitical tensions in the Middle East lead to a spike in oil prices.
Shin advised that now is the time to invest in ultra-short-term bonds with maturities between six months and one and a half years, and to reinvest when interest rates rise. He suggested that once signals of an end to rate hikes are confirmed, investors should gradually extend their duration from ultra-short-term to short-term and then to medium-term bonds.
He predicts that interest rate stability is likely to be seen in the latter part of the fourth quarter of this year, with a broader range of bond investment options becoming available between late Q1 and early Q2 of next year. Until then, he recommends a strategy focused on preserving principal and accumulating interest income with short maturities rather than hastily betting on long-term bond price increases.
Shin clarified that the recommendation to increase bond allocations does not imply that bonds will yield higher returns than stocks. He believes that stocks will likely continue to have an edge in expected returns in the second half of the year.
However, he stressed the importance of maintaining a mix of cash and ultra-short-term bonds to remain flexible during market corrections, rather than concentrating funds in a few stocks like Samsung Electronics and SK Hynix as seen in the first half of the year. Even if indices rise in the medium to long term, market volatility can lead to losses depending on the timing of entry.
Ultimately, Shin advised that discerning quality stocks will be crucial for second-half investments. Rather than simply looking for bargains, investors should assess whether profit growth translates into actual cash generation.
"In the first half, the focus was on how much money companies made, but now we need to consider how much they are investing in capital expenditures relative to their earnings," he said. He recommended maintaining liquidity through cash and short- to ultra-short-term bonds while focusing on companies with increasing earnings per share (EPS).
* This article has been translated by AI.
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