"I Thought I'd Hit the Jackpot"... Why Is My Stock Account Stagnant Despite Falling Oil Prices and Interest Rates [Weekend Money]

Despite Falling Oil Prices and Interest Rates, Index Gains Slow Down
As Conditions That Created "Concentration" Ease, Funds Disperse
"Semiconductor Equipment and Power Equipment—Previously Overlooked—Deserve Attention"

In the stock market, it is generally believed that "growth stocks perform better when interest rates decline." This is because borrowing money becomes easier and the value of future profits is assessed more highly. Especially in growth sectors like artificial intelligence (AI) and semiconductors, interest rate cuts have been regarded as a welcome development.

Recently, however, the U.S. and South Korean markets have been moving contrary to this conventional wisdom. Since mid-May, oil prices have fallen and interest rates have stabilized, but in the U.S., sectors such as banks, biotech, and capital goods have outperformed semiconductors and AI stocks. The pace of the KOSPI’s rise in South Korea has also noticeably slowed since mid-May. This has created a peculiar situation where positive factors emerge, yet the supposed main beneficiaries fail to gain momentum.

According to a report published on July 2 by Dae-Seung Kang, a researcher at SK Securities, the answer to this puzzle lies in the "dissipation of concentration." High oil prices and high interest rates had previously locked capital into large semiconductor stocks, but as those shackles loosened, funds began to disperse to other areas.

Why the Semiconductor Focus: In a Poor Harvest, Seeds Are Sown Only in Reliable Fields

Why did high interest rates and high oil prices lead to a concentration in semiconductors? It can be understood through a farming analogy. When a poor harvest is expected, farmers avoid taking risks and only sow seeds in fields with reliable water supply.

Investors acted the same way. When oil prices are high, corporate costs rise and the economy cools. When interest rates are high, even holding deposits or bonds yields attractive returns. If one is going to take the risk of buying stocks, they must be "proven stocks" with visible earnings. As a result, money flowed into large-cap semiconductor stocks, leaving other sectors neglected.

However, as armistice negotiations have progressed, these conditions have changed. The need to stick only with the "reliable fields" has disappeared. Funds that realized gains in semiconductors have begun rotating into other growth sectors—a phenomenon known as sector rotation, where money moves from one sector to another, driving alternating rallies.

However, Kang notes that the current sector rotation is different from previous patterns.

At the beginning of the year, optimism about interest rate cuts pushed U.S. economic growth forecasts up to 3%. Expectations that the economy would naturally improve became widespread, and this optimism lifted even consumer-oriented companies. In other words, it was a "rising tide lifts all boats" market.

Now, that optimism is gone. Therefore, the stocks that are rising are concentrated in industries directly tied to government and corporate spending, such as banks, homebuilders expected to benefit from affordable housing bills, and capital goods. In contrast, consumer-related sectors such as staple retail and food and beverage have been thoroughly excluded from this rotation, as there is little confidence that consumers will open their wallets.

The Korean Play: Will Semiconductor Equipment and Power Devices Benefit?

So how should individual investors interpret these trends?

Kang forecasts that "the Korean version of this dissipation of concentration will likely appear as an increased weighting in semiconductor equipment and power device stocks."

These are companies related to AI CAPEX (capital expenditures). During the period following the outbreak of the Iran war, when market focus was heavily tilted toward large semiconductors, these industries—despite their relevance to the AI theme—were relatively left out of the rally. In fact, while these sectors moved in tandem with KOSPI semiconductors at the start of the year, this correlation broke down starting in May.

Interestingly, this does not mean that the leading sector itself is changing. Rather, sector rotation is still occurring within the AI CAPEX-related industries linked to government and corporate investment cycles, but the spotlight is shifting from large semiconductors to adjacent equipment and power device stocks.

Kang analyzes that, as the valuation pressure created by high interest rates (where stocks seem expensive due to high rates) has eased, the environment has become more favorable for semiconductor equipment and power device stocks, which had been neglected in May and June, to outperform.

On the 3rd, the electronic display at the dealing room of Hana Bank headquarters in Jung-gu, Seoul shows market conditions such as the KOSPI, exchange rates, and KOSDAQ.

Of course, this scenario comes with prerequisites. International oil prices (WTI) must remain settled below $80 per barrel, and interest rates must stay within 4.5%.

If oil prices rise back above $80 or U.S. interest rates exceed 4.5%, economic uncertainty and valuation pressures will return. In that case, it is highly likely that funds will flow back into "reliable fields," namely large-cap semiconductors. Kang emphasized that these two figures should be used as "triggers for position changes."

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