"When Will the Stock Market Boom End? This May Hold the Key, Says New Report Analyzing the End of Stock Price Cycles [Weekend Money]"

IBK: "Bull Market Triggered by AI Likely to End Amid U.S. Financial Instability"

A Similar Pattern Observed During the Previous Secondary Battery Boom

On the 26th, when the KOSPI fell, the stock market status was displayed on the electronic board in the dealing room of the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jinhyung Kang

An analysis has found that the end of the stock market rally triggered by artificial intelligence (AI) will likely be caused not by a decline in AI demand, but by changes in financial conditions.

On June 27, IBK Investment & Securities released a report titled "How Will This Economic Cycle End?" and analyzed that if the recent economic expansion, driven by semiconductors, comes to an end, it is highly likely that the reason will be changes in funding conditions caused by shifts in the financial market, rather than a decrease in AI demand.

IBK: "The Bull Market Triggered by AI Will End Due to Financial Instability"

Jung Yongtaek, an economist at IBK Investment & Securities who authored the report, stated, "Given the scalability and disruptive power of AI, as well as expectations for technological advancement, it is difficult to predict when this economic cycle, led by semiconductor and AI investments, will end." He added, "No cycle continues to rise forever, and the increasing frequency of sharp fluctuations in the stock market could be evidence that anxiety is rising alongside expectations."

Jung further explained, "If AI investment enters a correction phase or contracts in the future, then naturally, both the current economic and stock price cycles will come to an end. However, I believe that the cause will not be related to AI demand, but rather to changes in funding conditions." He added, "Changes in the financial environment and funding conditions adjust market expectations and investments."

To support this argument, he emphasized the need to revisit the collapse of the previously experienced "secondary battery boom." The investment boom in secondary batteries, triggered by the ESG craze and government subsidy competition, faded rapidly and brought an end to the stock market rally and the cyclical expansion of the economy. Interestingly, even when the secondary battery boom was ending, companies' investment expectations and actions did not diminish. In fact, expectations for market expansion grew, and companies' capital expenditures (CAPEX) were actually on the rise up until the point when stock prices changed dramatically.

Jung identified the direct catalyst for this transition as the bankruptcy of Silicon Valley Bank (SVB) in the United States in 2023. As the Federal Reserve aggressively raised interest rates and the financial market tightened, a weak link broke, causing a sudden shift in financial market sentiment. As funding conditions deteriorated, prices that had reflected optimistic expectations plummeted.

Attention Should Be Paid to Changes in the U.S. Financial Market

He argued that, to understand the current economic cycle, one should focus more on the "U.S. financial environment" than on domestic conditions. This is because the semiconductor cycle that currently leads the Korean stock market is absolutely influenced by the financial and investment environment in the United States. He pointed out that, although the U.S. economy appears to be booming on the surface, risks are rising for companies that are being left behind due to severe polarization, and concerns about household insolvency are also growing.

Jung diagnosed, "Such anxiety is now surfacing through the 'private credit market,' which is a weak link in the current U.S. credit market," adding, "As AI investment balloons, pressure from this credit risk is also intensifying."

He concluded, "Although there are no urgent warning signs yet, anxiety is mounting, and given this highly probable environment, we need to pay increasing attention to the possibility that changes in the financial environment and funding conditions—just as with the secondary battery cycle—could bring this current cycle to a halt."

This content was produced with the assistance of AI translation services.