"U.S. Bio Stocks Hit Record Highs... Korean Bio Likely to Follow Soon" [Click eStock]

"US and Korean Bio Indices Have Historically Moved in the Same Direction"

While Korean bio stocks have continued to show sluggish performance, the U.S. bio index has been hitting record highs day after day. Why have the two countries' bio markets, which used to move in the same direction for a long time, diverged so much this year? Hanwha Investment & Securities pointed to the strength of the U.S. economy as the main reason and forecasted on June 30 that Korean bio stocks would likely follow the upward trend in the U.S. market in the second half of the year.

To understand the strong performance of U.S. bio stocks, it is important to first look at interest rate conditions. Recently, the price of West Texas Intermediate (WTI) crude oil plunged 36%, from 120 dollars to the low 70-dollar range. The general expectation is that falling oil prices will lower inflation, and that in turn will prompt central banks to cut interest rates.

However, the yield on the 10-year U.S. Treasury bond has fallen by only 5%. The prevailing view in the market is that this is "because Federal Reserve Chair Kevin Warsh took a hawkish stance at the June Federal Open Market Committee (FOMC) meeting."

Sanghee Han, a researcher at Hanwha Investment & Securities, challenges this market analysis. He offered a different interpretation, saying, "The reason market interest rates remain high is due to a strong economy." In other words, interest rates are not coming down because of inflation fears, but rather as a sign that the economy itself is solid.

He also offered a different take on the signals from the Federal Reserve. Since Chair Warsh announced at the FOMC that he would review all existing forward guidance, including the dot plot (SEP, a chart showing FOMC members' interest rate forecasts), it is not logical to describe the meeting as hawkish based on indicators that will no longer be used. He also noted that it was noteworthy that the Chair, who is generally negative about an increase in Federal Reserve assets, included a phrase about "maintaining ample liquidity" in the now-shortened statement. Han emphasized, "Whenever there is a contradiction between words and actions, it is always more important to focus on actions rather than words."

The U.S. bio index (XBI) has continued to set new record highs since mid-June, moving independently of other key indices such as the S&P 500 and Nasdaq. Han saw this as evidence of a strong economy and abundant liquidity. He explained that the benefits of artificial intelligence (AI) investments, which had previously been concentrated in memory semiconductors, are now spreading to other areas in the U.S., such as semiconductor equipment and bio stocks.

This also explains why Korean bio stocks have lagged behind. Until 2025, the correlation coefficient between the U.S. and Korean bio indices was a high 0.55, but it reversed to -0.63 from the second quarter of 2026. This is because domestic investment funds have been flowing into memory semiconductors, which have benefited from the AI boom, reducing the amount of capital available for Korean bio stocks.

Han expects that this gap will likely narrow in the second half of the year. If the interpretation of interest rates shifts from "burden due to a hawkish Federal Reserve" to "reflection of a strong economy and abundant liquidity," the assessment of the bio sector—which has been sidelined for being sensitive to interest rates—could also change.

Han said, "Historically, U.S. and Korean bio stocks have maintained a high correlation," adding, "If the interpretation of interest rates changes, the gap is likely to close."

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