Stocks That Can Withstand 'High Interest Rates': The Industry Sectors Drawing Analysts' Attention [Weekend Money]

"Even if Oil Prices Stabilize, Fiscal Deficits and Corporate Bonds Will Limit Declines in Long-Term Rates"


Earnings Expectations Center on Semiconductors Despite 10-Year U.S. Treasury Yield Exceeding 5%

Amid simultaneous concerns over high interest rates, elevated oil prices, and a potential slowdown in artificial intelligence (AI) investment, differentiated performance by industry sectors is expected to become more pronounced in the Korean stock market. In particular, analysts say that industries with upward revisions in both profit and revenue estimates are likely to maintain a relatively robust trajectory, even if market interest rates remain high. Yuanta Securities noted that it is necessary to pay attention to sectors—especially semiconductors—where earnings have been confirmed.

According to Yuanta Securities, the KOSPI fell 1.6%, while the KOSDAQ rose 5.9% from September 25 to October 1. Despite the burden of the U.S. 10-year Treasury yield exceeding 5%, strong earnings from Micron and solid domestic semiconductor exports supported the market floor. On the KOSDAQ, inflows of foreign and institutional funds were concentrated in semiconductor materials, components, equipment, and information technology (IT) hardware companies.

Jaewon Lee, a researcher at Yuanta Securities, stated, "As we enter the third-quarter earnings season this October, the key factor distinguishing sector performances is not high interest rates per se but whether earnings are sufficient to withstand them."

The main concern is that interest rates may not fall quickly in the short term. Recently, the rise in long-term rates has become harder to explain with oil prices alone. Factors now include not only the fiscal deficit and increased Treasury supply resulting from tax-cutting policies under the Trump Administration, but also the issuance of corporate bonds by AI firms, which has emerged as a driver for higher long-term interest rates. This means that, even if oil prices stabilize, fiscal and private sector bond supply may limit interest rate declines.

Yuanta Securities predicted that the One Big Beautiful Bill Act (OBBBA), the U.S. fiscal act enacted last year, will add about $4.2 trillion to the cumulative federal deficit between 2025 and 2034. The Dallas Federal Reserve also estimates that AI-related corporate bond issuance this year will reach around $300 billion. Yuanta Securities calculated that this translates into a bond market burden equivalent to approximately $360 billion in 10-year U.S. Treasuries to be issued.

However, some analysts note that it is not necessary to base the main scenario on the prolonged continuation of high interest rates and elevated oil prices. According to Bloomberg consensus, the U.S. consumer price index is expected to fall from the mid-3% range in the latter half of this year to approximately the 2% range in 2027. In addition, discussions between the U.S. and Iran resumed in late September, including talks on the sequence of reopening and lifting the blockade of the Strait of Hormuz.

From an earnings perspective, the profitability resilience of semiconductors has once again been confirmed. Micron recently reported earnings and next-quarter guidance that both exceeded market expectations. Notably, forecasted supply and demand for memory in 2027–2028 is expected to be even tighter than this year, and Micron announced that more than 75% of its 2027 production volume has already been allocated through long-term contracts and other arrangements. Some long-term supply contracts will reportedly extend through 2031.

Indicators supporting the domestic semiconductor market remain positive. Yuanta Securities cited GPU rental prices, spot memory prices, memory price outlooks, and September semiconductor exports as evidence of the sector’s earnings power. There was particular attention on the sharp year-on-year increase in semiconductor exports in September, despite a high base of comparison.

Researcher Lee stated, "It is important to focus on sectors where both 1-month and 12-month forward earnings per share (EPS) and sales per share (SPS) have been revised upward recently. In an environment of high interest rates and oil prices, sectors where both profits and investment are being confirmed warrant increased portfolio allocation."

On the KOSDAQ, semiconductor materials, components, equipment, and IT hardware are leading the gains. The KOSDAQ rose 29.4% in August and added another 2.6% rise in September. However, Yuanta Securities analyzed that the recent rebound was due to a relaxation in supply and demand pressure that was previously focused on Samsung Electronics and SK hynix, along with a recovery in previously oversold stocks, rather than an improvement in profits across the entire KOSDAQ. The 12-month forward EPS for the KOSDAQ has effectively been flat for a year.

Accordingly, a selective approach focusing on semiconductor materials, components, equipment, and IT hardware—where performance is backed by results—remains necessary for the KOSDAQ. On the other hand, analysts noted that it is important to check the flow of earnings estimates for export-oriented and securities stocks, which may be affected by a stronger won and a decrease in trading volume due to a delayed return of retail investors to the market.

He added, "Next week, the domestic stock market enters the third-quarter earnings season, starting with the preliminary earnings of Samsung Electronics. Ultimately, the market's focus will be on whether an industry sector can generate profits while bearing the burden of high interest rates, rather than on high rates alone."

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