High Volatility is the New Normal, Says Kim Hak-kyun of Shin Young Securities

Last month, the domestic stock market experienced extreme volatility, with fluctuations of hundreds of points in a single day. Despite Samsung Electronics and SK Hynix reporting record earnings, their stock prices plummeted, only to rebound the next day. Although the volatility has somewhat decreased in August, predicting market direction remains challenging. Some have even likened the stock market to a gambling table.

Research centers at securities firms, tasked with analyzing and forecasting the market, find themselves in a difficult position, as the weight of their reports carries significant responsibility. How do seasoned market veterans view the current situation and what predictions do they offer?

In a recent interview at the Shin Young Securities headquarters in Yeouido, Seoul, Kim Hak-kyun, head of the research center, shared his insights on the stock market outlook for the second half of the year. With 30 years of experience in the market, Kim stated, "We are currently in a market unlike any we have experienced before. While similar events have occurred in financial history, the phenomena we are witnessing now are unprecedented."

However, he does not consider this extreme volatility to be a market crisis. He explained that the growth expectations generated by the new artificial intelligence (AI) industry, combined with the inherent volatility of memory semiconductors, create a natural process. He diagnosed, "High volatility is the new normal," emphasizing the importance of establishing investment principles that can withstand volatility rather than trying to predict market direction. Ultimately, he stressed that patience is key.

Kim predicts that high volatility is likely to continue. He noted, "Samsung Electronics and SK Hynix are the most pivotal companies venturing into the uncharted territory of AI, and historically, memory semiconductors have exhibited significant stock price fluctuations. Given that these two companies account for over 50% of the market capitalization, their volatility will inevitably define the KOSPI."

Of course, volatility is not always welcomed by investors, as it can lead to impulsive buying or panic selling. However, Kim clarified that volatility should not be viewed solely in a negative light. He remarked, "Prices often deviate from the average during upward movements, which is also a form of volatility in financial markets. It is not inherently good or bad."

Concerns have arisen in some market circles that the recent adjustments in semiconductor stocks may signal a downturn in the AI investment cycle. Nevertheless, Kim believes that the structural growth trend in semiconductors remains intact. He pointed out, "SK Hynix's stock price has nearly increased 18 times in the past year, and Samsung Electronics has risen sevenfold. Stocks that have appreciated so much rarely decline gradually during corrections. The current adjustments are a natural process."

He also highlighted differences from past memory semiconductor cycles, noting that the expansion of long-term supply contracts (LTAs) and increased AI investments have strengthened companies' profit resilience compared to the past. Kim stated, "While there are various concerns, one notable difference is that the likelihood of profits halving, as seen in the past, is low due to the increase in long-term supply contracts. When companies make significant profits, they can also return value to shareholders, which means the semiconductor sector is more likely to rebound rather than collapse." However, he added that given the heightened expectations in the market, "the rapid surges seen in the first half may not be repeated."

Recently, target prices set by securities firms for Samsung Electronics and SK Hynix have varied significantly. This divergence reflects differing perspectives on performance and valuation amid a rollercoaster market. According to FnGuide, target prices for Samsung Electronics range from a low of 300,000 won to a high of 650,000 won, a gap of 350,000 won. This has led investors to question, "Whose forecast should we trust?"

However, Kim views this divergence as a sign of a healthy market. He explained, "The nature of the stock market is that for someone to buy, there must be someone willing to sell. If I believe I can sell at a higher price, why would I sell? Each participant makes decisions for their own benefit, and that interplay is what constitutes the stock market."

He continued, "No one knows the future with certainty. The existence of differing forecasts and logic is what shapes the market." He emphasized that if analysts all agreed on a positive outlook, stock prices would not form. In a situation where some recommend buying while others suggest selling, investors can make informed choices, creating a beneficial ecosystem.

The differing forecasts from securities firms following the earnings announcements of Samsung Electronics and SK Hynix stem from varying perspectives on the future. Kim stressed, "This is a natural situation, and it is not unusual to have differing opinions."

For investors seeking solutions, Kim advises that they should invest with "money they can afford to endure." He believes it is far more important to establish investment principles that can withstand volatility than to try to predict market direction. He stated, "There is no such thing as investing in a stable manner. Since we cannot predict the future, it is absolutely crucial to invest with money that can withstand volatility."

He also clarified the distinction between investing and speculating. He noted, "First, you must buy reasonable stocks. Evaluating the appropriate value you can expect from an asset and believing that it will converge to that value when purchased below that price is investing. However, expecting someone else to buy at a higher price than you is speculation." Ultimately, he explained that investing focuses on the intrinsic value of a company rather than short-term price fluctuations.

Kim defined the essence of stocks, stating, "Stocks are not fundamentally about buying low and selling high. They are about partnering with a business." He added, "In the stock market, anything can happen, but fundamentally, those who can endure volatility are the ones who make money."

He quoted investment guru Charlie Munger, saying, "The stock market is a place where money moves from the impatient to the patient," emphasizing that those who believe in and can wait for good companies will achieve better long-term results.

He also stressed the mindset of investors, saying, "Ironically, we invest to become wealthy, but if we do not invest like the wealthy, it is difficult to become wealthy. Just as a baseball player cannot hit a home run if they are too tense, it is necessary to relax and approach investing with a calm demeanor."

Looking ahead to the remaining four months, Kim identified the sustainability of AI investments and U.S. monetary policy as key variables that will influence the stock market in the second half. He stated, "There are general expectations and concerns regarding AI, and it will be important to see what guidance CEO Jensen Huang provides."

He added, "The other factor is interest rates. If the U.S. Federal Reserve continues to tighten aggressively, stock prices may face corrections. However, given that inflationary pressures in the U.S. are not excessive and the economy is not overheating, the likelihood of the Fed pursuing aggressive tightening is low."

Additionally, he noted, "How Samsung Electronics and SK Hynix utilize their substantial profits for shareholders will also be crucial. The realization of shareholder returns and the extent of those returns will influence stock prices."

Finally, regarding the KOSPI outlook for the second half, Kim stated, "I cannot predict a target, but I can assess whether the market is undervalued or overvalued. Currently, it seems to be quite cheap." However, he cautioned that the market dynamics differ from the rapid rise led by semiconductors in the first half, suggesting that the previously proposed '10,000 points' forecast may not unfold at the same pace as before, warranting further observation.

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