As volatility in domestic and global stock markets has intensified, it is difficult to determine whether investors should sell before prices fall further or view the dip as an opportunity for bargain hunting. Experts advise that investors should examine risk signals appearing in key indicators such as corporate financing burdens and earnings outlooks, rather than short-term price movements, and reflect these findings in their investment strategies. Analysts note that the appropriate response may vary depending on whether the decline is driven by weakened investor sentiment or temporary selling pressure, or by deteriorating corporate profitability and financial soundness.
"Reversal of credit spread decline: The first signal of a stock market rebound"
According to the financial investment industry on the 9th, concerns over strengthened data center regulations have grown following the "blue wave" victory of the Democratic Party in recent U.S. midterm elections, causing simultaneous sharp declines in U.S. tech stocks and domestic semiconductor shares. Although the market has attempted a rebound since then, volatility remains high.
However, some analysts argue that the shock to the stock market has not spread across the entire capital markets. Reuters reported that while the VIX (Fear Index) on the U.S. stock market rose to 28.18 on the 5th, the MOVE index, which measures volatility in the bond market, remained below its October peak, indicating that the bond market was relatively stable. Idana Apio, portfolio manager at First Eagle Investment, told Reuters that investors should monitor not only whether stock price volatility surges further, but also whether growing market instability is making actual fundraising more difficult. The point is to distinguish between a simple plunge in stock prices and a situation where corporations and financial institutions struggle to raise funds through bond issuances and other means.
On the other hand, warning signs have emerged regarding credit risk among U.S. tech companies. Lee Jae-man, a researcher at Hana Securities, stated in a report on the 9th that the credit spread for investment-grade corporate bonds of U.S. tech stocks has widened to 159 basis points (bp), reaching its highest level of the year. Credit spreads represent the interest rate difference between corporate bonds and government bonds; as they widen, the burden of financing for companies increases.
The researcher identified a reversal in the decline of tech stock credit spreads as the first condition for a stock market rebound. Since the investment capacity of U.S. artificial intelligence (AI) companies is linked to the performance of domestic semiconductor firms, this is an indicator that domestic investors should also pay attention to. There are also calls to examine the issuance and refinancing conditions for domestic corporate bonds, commercial paper (CP), and short-term financing bills.
"Restoring confidence in earnings outlooks: The second condition for a rebound"
Along with financing burdens, another risk signal to check is corporate earnings outlooks. If stock prices fall while earnings outlooks are maintained, it may be due to the impact of investor sentiment or concentrated selling; however, if earnings outlooks also deteriorate, corporate valuations must be reassessed.
Jane Gibbons, equity strategist at U.S. investment bank Jefferies, assessed on the 5th (local time) that the record-breaking plunge in U.S. tech stocks was a reaction resulting from overlapping uncertainties related to AI investment, policy, and inflation. Analysts suggest that rather than a fundamental change in corporate fundamentals, multiple concerns were reflected in stock prices all at once.
Kim Seong-hwan, a researcher at Shinhan Investment Corp, also analyzed in a report on the 9th that the decline in U.S. tech stocks deepened as hedge funds heavily invested in these stocks successively unwound their leveraged positions. He explained that the 12th-month forward price-to-earnings (P/E) ratio for the semiconductor sector has fallen to 12.3 times, lower than the historical average of 19 times, while earnings per share (EPS) forecasts have actually been revised upward.
Seo Jeong-hoon, head of the Global Equity Team at Samsung Securities, assessed that despite the sharp drop in stock prices for data center-related shares, revenue and profit outlooks based on actual order backlogs and capital expenditure plans remain solid. However, he predicted that as regulatory and cost burdens increase, large companies with strong financing capabilities may gain a relative advantage.
The researcher presented the decline in credit spreads and the restoration of confidence in corporate earnings outlooks as conditions for a stock market rebound. He advised investors to screen medium- to long-term investment targets by examining both credit risk and performance outlooks, rather than merely chasing short-term price rebounds.
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