[Seoul Pre-Market Brief] Oil, Rates Tumble as AI Worries Persist

WTI plunges 7% in anticipation of US-Iran negotiations, 10-year note 4.9%, concerns over AI financing persist... In Korea, attention is paid to semiconductor performance and pension fund supply and demand.

Key market trends

• ① Expectations for negotiations between the US and Iran… Oil prices plunged 7%

The U.S. stock market showed a mixed performance due to falling oil prices and interest rates due to easing tensions in the Middle East and weakness in AI-related stocks.

Following U.S. Secretary of State Marco Rubio's statement that he prefers negotiations to war, President Trump also stated that Iran wants an agreement and that negotiations are possible.

In Iran, President Massoud Fezeshkian expressed his willingness to resolve the matter diplomatically, saying he had received permission for dialogue from the Supreme Leader. As a result, WTI plummeted by more than 7% to the $96 per barrel level, and the U.S. 10-year Treasury bond interest rate also fell to around 4.9%.

Despite the recent plunge in technology stocks, the entire market did not collapse. Since October 6, the market capitalization of AI-related stocks has decreased by about $5 trillion, but the market capitalization of the remaining 625 companies has actually increased by $1.3 trillion. The index fell last week, but 9 out of 11 industries rose.

• ② Oracle, alphabet, meta… Continued concerns over AI funding

Wariness about AI-related stocks continued. How to raise the funds needed for large-scale investments and turn them into profits has emerged as a topic of interest in the market.

Oracle disclosed plans to increase capital and issue corporate bonds worth 20 billion dollars, and Alphabet also issued bonds worth 6 billion euros. Bloomberg reported that Meta is also pursuing a bond issuance worth $20 billion.

Antropic's performance also heightened controversy. Sales in the third quarter increased significantly to $16.9 billion, but an operating loss was recorded and large-scale AI-related purchase commitments were also disclosed. The market has begun to again consider whether cash flow can keep up with the pace of investment.

It was also a burden that S&P lowered Meta's credit rating outlook from 'stable' to 'negative'. There appears to be continued concern about investment costs and cash flow rather than the growth potential of AI companies.

There are also counterarguments. As the growth of major AI businesses such as AWS and Google Cloud is maintained, some see the recent decline as an adjustment in expectations rather than a deterioration in fundamentals. Deutsche Bank again raised its proportion of technology stocks to expanded.

• ③ Only AI is missing… Differentiation within the market

A characteristic of the recent correction is that selling is concentrated on AI-related stocks.

While the market capitalization of AI-related stocks decreased significantly, funds flowed into other industries. On this day, 7 industries, including consumer discretionary goods, materials, and finance, rose, and only 4 industries, including energy, technology, and communication services, fell.

The ISM manufacturing index in October was 55.5, exceeding market expectations of 54.5. The fact that international oil prices and government bond interest rates have fallen simultaneously while economic indicators are holding up is a favorable environment for the stock market as a whole.

Market Man's Perspective

The previous day, the domestic stock market reversed the decline with purchases by institutions and pension funds despite bad news from the United States. Recently, as bad news related to AI has been repeated, the influence of the same news is gradually decreasing.

Domestic semiconductors need to be viewed from a slightly different perspective than US technology stocks. Factory fires and supply bottlenecks contributed to Intel's low earnings outlook, and the lowered outlook for the PC business is also linked to memory supply shortages. Rather, there are parts that confirm the strength of the memory industry.

Semiconductor exports in October also increased by 260% compared to the same month last year, showing performance improvement from the beginning of the fourth quarter. In addition, since last Friday, pension funds have been protecting the bottom of large-cap stocks by purchasing Samsung Electronics and SK Hynix in succession.

Valuation has also been significantly lowered. Based on this year's performance, the PER is 4.9x for Samsung Electronics and 4.0x for SK Hynix, and if next year's performance is applied, it will drop to 3.1x and 2.7x, respectively. Even if the performance outlook is applied conservatively, the valuation burden has been significantly lowered due to recent adjustments.

It is difficult to determine a short-term bottom. As the weakness in U.S. semiconductor stocks is likely to have an impact early in the market, it is important to see whether pension fund purchases continue and how foreign supply and demand moves. It is time to distinguish between excessive adjustments of stocks that have confirmed performance in a favorable environment of falling oil prices and interest rates.

Today's checkpoint

Semiconductor: Early market stock price reaction of Samsung Electronics and SK Hynix following weakness in U.S. semiconductors

Pension Fund: Will the recent purchases of Samsung Electronics and SK Hynix continue?

Foreign Investors: Whether there has been a change in semiconductor supply and demand after the early-market selling

Oil prices and interest rates: WTI in the $96 range and US 10-year Treasury note down 4.9%

AI Finance: Will large-scale corporate bond issuance and cash flow concerns lead to additional selling?

Key indicators

Dollar Index 101.77 (-0.1%)

International oil price $96.46 (-7.26%)

Volatility Index 21.15 (+8.91%)

US 10-year Treasury bond interest rate 4.90%

MSCI Korea Index -0.71%

Night Futures -3.84%

Source: Market Man's stock story t.me/shmstory

YouTube: Sihwangman TV www.youtube.com/@blueoak1004

This article was rewritten from Shihwangman's Stock Story Telegram post with the author's consent. All content may contain errors and cannot be used as a basis for buying or selling as it is not a recommendation to buy or sell. The content of this post cannot be used as legal basis under any circumstances.