Rate-hike odds fall from 63% to 50%, and chip and robot stocks carry the KOSPI up 1.64%

KOSPI up 1.64%, KOSDAQ rebounds after four straight losses

The KOSPI closed at 6,687.21 on Sept. 4, up 107.73 points or 1.64%. The KOSDAQ added 23.29 points, or 2.95%, to 813.50 — its first gain in five sessions and enough to put it back above 810.

The cue came from New York the night before. Federal Reserve Governor Christopher Waller said he would be willing to support holding the policy rate at its current level if progress toward the 2% inflation goal continues. Futures pricing for a quarter-point hike at the September meeting fell from 63.2% to 50.5%, the 10-year Treasury yield eased 3 basis points to 4.761% and the two-year fell 5 basis points to 4.332%. The Dow rose 1.18%, the S&P 500 1.06% and the Nasdaq 1.40%.

Flows reversed from a day earlier. Foreign investors bought a net 503.4 billion won and institutions a net 1.67 trillion won on the main board, while retail investors sold a net 3.72 trillion won.

Buying moved from chip equipment into robots

The order of the rally was legible. Chips went first, equipment names moved further than the large caps, and robots followed.

Samsung Electronics rose 2.20% and SK Hynix 3.20%. Equipment was a different scale: Hanmi Semiconductor climbed 9.26% to 230,000 won, Jusung Engineering added 6.13% and Wonik IPS, listed on the KOSDAQ, gained 9.33%. SK Square, the holding company whose net asset value is dominated by its SK Hynix stake, rose 6.12%.

The backdrop is August trade data. Exports released on Sept. 1 by the Ministry of Trade, Industry and Energy came to $98.25 billion, up 68.7% from a year earlier. Chips accounted for $46.65 billion of that, a 209% increase and an all-time monthly record, the third straight month above $40 billion.

Robots had a catalyst of their own. ROBOTIS jumped 22.54% to 304,500 won after reporting second-quarter revenue of 15.4 billion won, up 95% year on year, and an operating profit of 2 billion won that swung the company back into the black. Wonik Holdings closed limit-up at 22,500 won, 29.91% higher, and Rainbow Robotics gained 5.15%.

Refiners joined in. With October West Texas Intermediate settling at $91.30 a barrel for a fourth consecutive gain, S-Oil rose 6.36% and SK Innovation 5.73% on expectations of wider refining margins.

Banks and insurers hand back the previous session's gain

The decliners were yesterday’s winners. Shinhan Financial Group fell 3.67% and KB Financial Group 3.32%; Samsung Life Insurance lost 1.82%. All three had risen between 3% and 5% on Sept. 3.

The two sessions are the same assumption read forwards and then backwards. Higher-for-longer Treasury yields underpin bank net interest margins and improve insurers’ solvency positions; once the pressure for further hikes eased, the positions built on that assumption were the first to be unwound.

Nothing changed in earnings. The premise changed.

By sector on the main board, precision instruments rose 3.86%, IT services 2.65%, electrical and electronics 2.44% and machinery 2.21% — the exact mirror image of what fell hardest.

The won touches the 1,340s for the first time in 14 months

The won finished onshore trading at 1,350.4 to the dollar, 8.9 won stronger, after trading into the 1,340s intraday — its firmest level in about 14 months. The Hana Bank reference rate was 1,351.3.

The driver is the same one that moved equities. Fading concern about further Fed tightening weakened the dollar, and a steady flow of exporter dollar selling, fed by the semiconductor export boom, pushed the pair lower. A firmer yen added to the move.

On the KOSDAQ, foreign investors bought a net 260 billion won and institutions a net 160.2 billion won, while retail investors sold a net 411.9 billion won. Alteogen, the index’s largest constituent, rose 1.94%, and chip equipment names that had led the decline a day earlier drove the rebound.

One figure is left unexplained. The 3.72 trillion won that retail investors sold on the main board exceeds the 2.17 trillion won bought by foreign investors and institutions by roughly 1.55 trillion won. In the exchange’s investor breakdown that residual sits with the ‘other corporations’ line, which has been swollen of late by the buyback programs running at Samsung Electronics and SK Hynix.

Today's Foreign Investor Flows

What to watch next session

First, next week’s US inflation print. The rally started from the expectation of a September hold, so a hotter reading undermines the premise before it touches any single stock. The FOMC meets Sept. 15-16.

Second, the yen carry trade. Expectations of a Bank of Japan hike in September and a firmer yen have revived unwind concerns. Sessions in which dollar-yen falls quickly tend to be sessions in which risk appetite falls with it.

Third, whether robots get a second catalyst. ROBOTIS had a documented one in its quarterly results; Wonik Holdings, limit-up on the same day, looks closer to a stock carried by sector-wide buying. Whether the gains hold or reverse will settle how this session reads.

Fourth, the ‘other corporations’ bid. The gap between what retail sold and what foreign investors and institutions bought runs past 1.5 trillion won. The test comes on the day that buying thins out and the other participants have to stand somewhere.

Fifth, the currency. Exporter dollar selling tends to keep the direction intact while it lasts, but a fast appreciation cuts the other way through exporters’ won-translated earnings.

Three things worth noting

Photo: naotakem / Flickr (BY 2.0)

August semiconductor exports came to $46.65 billion, up 209% from a year earlier and an all-time monthly record. It was the third straight month above $40 billion, and chips alone made up 47% of the country’s $98.25 billion in total exports.

Friday’s large-cap move sat on top of that. SK Hynix rose 3.20% to 1,647,000 won and Samsung Electronics 2.20% to 255,500 won. Foreign investors bought a net 308,833 shares of SK Hynix.

Equipment moved further. Hanmi Semiconductor climbed 9.26% to 230,000 won on net buying of 353,063 shares from foreign investors and 223,808 from institutions. Jusung Engineering added 6.13%.

There is a sequence behind equipment outrunning the large caps. Memory prices rise, capacity decisions follow, and tool orders come after that. With export figures setting records for a third consecutive month, the market priced the orders that come last before they were placed.

ROBOTIS jumped 22.54% to 304,500 won, with turnover of 428.2 billion won putting it among the most heavily traded stocks of the session.

The basis was earnings. Second-quarter consolidated revenue rose 95% year on year to 15.4 billion won and operating profit of 2 billion won returned the company to the black. Shipments by smaller Chinese humanoid makers went from 600 units in the first half of last year to 2,600 this year, pulling component sales up with them. Expected spillover from the US Federal Communications Commission’s restrictions on Chinese-made robots was cited alongside it.

Stocks that moved the same way did not all have the same basis. Wonik Holdings closed limit-up, 29.91% higher, though its actual business is gas supply equipment and piping engineering for semiconductor and display fabs. Rainbow Robotics rose 5.15%.

When a whole sector moves in one session, differences in the underlying case do not show up in the price. They usually show up over the following few days.

On Sept. 3, financials were what held the index up. KB Financial Group rose more than 5% and Shinhan Financial Group more than 3%, with the insurance and banking sector indices both higher. It was buying premised on Treasury yields staying elevated.

A day later that premise weakened. After Waller’s remarks the implied probability of a September hike fell from 63.2% to 50.5% and the 10-year yield eased to 4.761%.

Prices retraced by about as much as they had gained. Shinhan Financial Group fell 3.67% to 110,300 won and KB Financial Group 3.32% to 172,000 won; Samsung Life Insurance lost 1.82%. Foreign investors sold a net 355,054 shares of Shinhan Financial Group and 268,088 of KB Financial Group.

That the two moves are of similar size says what kind of buying it was. Neither earnings nor dividends changed overnight. Money that attaches to a rate forecast and detaches from it can do the same thing in reverse on the next inflation print.

Sources

• opinionnews.co.kr Korean-language article
• Newspim Korean-language article
• joongangenews.com Korean-language article
• Money Today Korean-language article
• Money Today Korean-language article
• News1 Korean-language article
• Asia Economy Korean-language article
• EBN Korean-language article
• Etoday Korean-language article
• Money Today Korean-language article
• CBC News Korean-language article
• Asia Economy Korean-language article