Big Tech Shares Fall As U.S. Bond Interest Rates Rise? 3 reasons why it's not OB-I-Rak.

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: January 15, 2025 (Wednesday)
■ Talk: Cha Young-joo, Director of the Institute for i-Asset Economics,

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.
◇ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): Yes, let's continue with YTN Radio Live Economy Part 2. In the second part, we will get a little closer to the stock market. Today, we will be with Cha Young-joo, director of the Ai Asset Economic Research Institute. Welcome, director.

◆Cha Young-joo, Director of the I Asset Economic Research Institute (hereinafter referred to as Cha Young-joo): Yes, hello.

◇ Cho Tae-hyun: Originally, we were supposed to talk peacefully in the world economy, but we came to a noisy world. It's very loud today as well. I don't think the overall market itself has a good direction. It's the same in the U.S. How did you see the situation in the United States?

◆Cha Young-joo: First of all, isn't President Trump taking office next Monday in the New York Stock Exchange? First of all, I think I'm starting to be a little wary of myself from January. So, maybe because we've experienced President Trump once more than any other president in the past, when a new president takes office, don't we usually have some expectations for the honeymoon period, the honeymoon period, and the new policy? Our honeymoon was the most beautiful time. But in a way, it's a situation that I've experienced once, and it seems that the ripple effects of the first period on President Trump's policies have already been reflected to some extent during the election. So this year and President Trump's remarks have become more radical, showing some volatility. But that volatility isn't that big. So, in a way, since the expression "shelf marked" is appropriate, I think we should only look at the natural adjustment like this.

◇ Cho Tae-hyun: Well, it was very hot last year.

◆Cha Young-joo: And if you look at the indicators that are coming out now, economic indicators are somewhat stabilized, but some of them are a little bit more rebounding than downward stabilization. I'll go back and talk about it, but these are the parts that can shake the interest rate cut stance, such as bond rates. These are things outside of Trump. So in a way, it's overlapping. As Trump's own problems and Trump's tariff policies appear as parts that can reverse downward pressure on the economy, the New York stock market is currently shaking, and in short, the domestic stock market seems to be wary of the current political schedule, but the stock market rose during the first execution. But now, the domestic stock market is stronger than the KOSPI KOSDAQ, and in today's case, you need to look at the exchange rate. In the first round, it came down to the late 1450 won range, but it's currently at 1460 won.

◇ Cho Tae-hyun: It doesn't fall this strong.

◆Cha Young-joo: Yes, but this situation in its own way, so the thing that the stock market hates the most right now is uncertainty. If the uncertainty is resolved, there is a possibility that the domestic stock market may stabilize a little when the exchange rate comes down, so the domestic stock market will be summarized briefly after looking at the exchange rate.

◇ Cho Tae-hyun: Okay. All situations are intertwined, but I hope the uncertainty will be resolved quickly when looking at the stock market.

◆Cha Young-joo: The political schedule is the next issue.

◇ Cho Tae-hyun: But let's take a look at the situation in the U.S. again. Technology stocks have been sluggish in the U.S. The adjustment continues, but is it also related to the very high interest rate on government bonds?

◆ Cha Young-joo: There are a lot of things that are related. First of all, before I understand technology, I'm going to tell you a little bit about the government bond rate, which is a little bigger. First of all, the interest rate on the 10-year Treasury bond is close to 5%. The 20-year is already over 5%, and it's true that interest rates that are a little further away are high. We don't know what we're going to do in 10 years or 20 years, so if we don't know, interest rates will go up. That much uncertainty reflects more uncertainty. But the fact that the 10-year Treasury bond rate has exceeded almost 5% is that the U.S. benchmark interest rate is now 4.5%. So, you have to understand that the current government bond rate is much higher than the US base rate. However, the reason why the volatility of the stock market begins when the interest rate on government bonds rises is that the price of money goes up if I give some simple theoretical explanations. Simply put, you have to pay more interest when you borrow money, but what does that mean? If the economy seems to slow down, those who have money will need me to lend them money, it's better for me to have it. But if you want to borrow my money, give me more interest. This phenomenon means that interest rates go up. Second, if interest rates go up like this now, you have to see the effect of a substitute in the stock market. Many people are overlooking it, but the stock market is volatile in January, and I make 5% when I buy bonds, so why am I making a risk-free return? Why do I take risks and may not make 5% a year, but there is a substitute for stocks?

◇ Cho Tae-hyun: Because he's the last king of safe assets.

◆Cha Young-joo: Then the price of bonds goes down, so when interest rates go up, it's the last stock price. People overlook it a lot, but stocks are discounted profits for the future at present price. Then, if interest rates go up, if the discount rate goes up, the current value decreases. This will increase the PER. This is a little difficult, but theoretically, the value of the stock in the present decreases. As a result, stock prices are bound to fall. I'll wrap it up like this.

◇ Cho Tae-hyun: There was a difficult story a little while ago, so in theory, the stock price is the price of adding all the dividend values of the future to the current price.

◆Cha Young-joo: Dividends or cash flows.

◇ Cho Tae-hyun: Everything in the world is at this discounted price. So I think you can understand this much.

◆ Cha Young-joo: Anyway, so that's why we have two psychologically affected stocks that are relatively affected when interest rates go up. It's a big tech company and a bio company. In the case of big tech companies, it rose a lot in 2024, so in a way, I think it would be better for me to realize profits. I don't know if the stock hasn't gone up, but why then, as we've had a sharp correction in 2022 after 2021 in the past in the U.S.? Because stock prices rose during the COVID-19 pandemic, such things are now compounding the U.S. stock market. Furthermore, the last conclusion is that there is a lot of psychology to see Trump like that even if he takes care of it and buys it again because he doesn't know what he will do.

◇ Cho Tae-hyun: His existence itself is like uncertainty, so let's take a look at the stock sector that stands out. In fact, I think the key to this week is quantum computer stocks. After the CEO of quantum computer stock Nvidia or Meta CEO talked about it, it is experiencing a sharp decline. What's the situation like?

◆Cha Young-joo: When I first said Google developed a quantum computer, the stock price soared. So the idea of what a quantum computer is very simple, we can say that a basic computer is a process in which a ballpoint pen flows sideways. 1+1+1. Then, if AI stands it up, it can be said to do 1+1 in parallel and do about 10 at the same time. For quantum computers, this is what shakes. I think you can understand it like this when you are shaking and performing various tasks at the same time. After this is developed, it will be groundbreaking if it becomes a different type of calculation than the various calculation methods that have been in the past. We've learned that artificial intelligence has taken everything new, and both are going to have some effect of multiple multipliers, so the stock price has gone up, and Jensen's Huang has poured cold water on it. At the current rate of technology development, it is difficult to commercialize within 30 years. As a result, quantum-related stocks were shaken a lot. Representatively, there is an American quantum computer-related stock called IonQ.

◇ Cho Tae-hyun: What surprised me was that. I heard that a third of IonQ shareholders are Koreans.

◆Cha Young-joo: That's right. If you look at IQ alone, it's around $17 in November and around $56 in January and $30 in January. Then there's Liggeti Computing, which went up to $222, and now it's $9 and now, as you said, 30% of IonQ and 15% of Liggeti Computing are domestic shareholders. So, a meme phenomenon, and then a recursive phenomenon that Soros talked about, went up, so many YouTubers mentioned this. This week goes up if I'm right. So, it was possible to do this, but many domestic investors are now so-called, and ETFs with IONQ have been delisted, so major domestic securities companies are guiding customers to this. An article like this was also published today.

◇ Cho Tae-hyun: Then I think the loss will be huge.

◆Cha Young-joo: From the perspective of those who invested in ETFs, I mean, it was done in preparation for the high point, so there must be some people who have benefited yet. That's why individual stock investors can manage risk, but ETFs are funds. If it is delisted, it will be liquidated.

◇ Cho Tae-hyun: Is that flying?

◆Cha Young-joo: It's flying. So when we invest in overseas stocks, some of the most difficult things we don't know well. So in a way, there are people who only invest in Nvidia, Apple, and Tesla, which are the most stable, and honestly, it took me a long time to figure out the true nature of these stocks. So, it took a long time for me, so-called experts, to figure out what the company IonQ does, not this stock price, but I think investing in something like this took a little too much risk.

◇ Cho Tae-hyun: Actually, in the case of IonQ, the technology they are claiming is a little different from Google.

◆Cha Young-joo: It's a little different, and a domestic person is a co-founder here. So I asked him, "No, Jensen Hwang takes 30 years. What do you think?" He asked me a question at a conference recently, so watch Nvidia 30 years ago. Did you think of Nvidia at the time? We also said positively that in 30 years, it will be trillions of dollars higher than Nvidia today, but there are parts related to this overlap that I mentioned earlier, and there are parts related to quantum computing that need to be maintained, and parts that need to be utilized are very complicated. Since the degree to which we evolve from DRAM to HBM is a little different, there are a lot of very simple books related to quantum these days. Reading it once helps you understand future technologies, but quantum computing is different from this. First of all, the parts of maintenance and utilization should be further expanded. I'll tell you.

◇ Cho Tae-hyun: Quantum mechanics itself is very difficult, but in fact, you have experience investing in stocks. I think it would be good to refer to this as not to invest in situations you don't know. We talked about a lot of companies. I've mostly talked about quantum computers, but now I can't help but talk about Trump. Is Trump's inauguration on the 20th?

◆Cha Young-joo: It's Monday the 20th. I think the most important thing is how far the executive order goes in the stock market.

◇ Cho Tae-hyun: On his first day in office, he vowed to become a dictator.

◆Cha Young-joo: I know. And there are some areas where you can make some radical remarks to become an outside rabbit who became a house rabbit for an election during a presidential election, and isn't it going through a process of purification in the process of policy making? In the first period, President Trump's commitment and policy implementation rate was less than 50%, so to some extent, we said, "Isn't it okay for us to use radical rhetoric now?" but radical rhetoric continues. That's why I think the volatility of funds in the New York stock market begins. In a way, even though it is a time when policy expectations should be reflected in past cases, isn't this really not subsidizing after the primary policy expectations are reflected? Isn't this really blocking the border? What if he really hits the tariff? And because of this, there's a lot of anxiety about whether you're leaving the climate agreement again. Therefore, when looking at the stock market, the fate of a country and a company depends on the executive order to be released on the first day of his term, so keep an eye on it, and in a way, the domestic stock market is less volatile than the current primary political schedule, so it is possible to predict that this is looking at Trump more than this.

◇ Cho Tae-hyun: I think it would be Trump if I personify uncertainty variables and create a person, so how should the market approach it in this case?

◆Cha Young-joo: But I don't think we're in a situation where we're going to move too quickly. The domestic stock market is also strong, but I saw it briefly, but no one in particular moves to follow me. The overall atmosphere is around KRW 55,000 for Samsung Electronics and KRW 200,000 for Hynix. I think there are two ways in this case because the rest of the stocks that moved a little are in that state. It's better to pack about a third of what you can pack now. It made some profits and couldn't sell it at the peak of Tesla, which became Nvidia in the United States. Don't be so unfair and if you have cash, you can just hold on, but if I say I don't have cash, if you have about a third of the cash, new things will appear. It is believed that there is a possibility that some of these things, such as Trump policy beneficiaries, will appear. Don't try to do anything on the floor about aggressive investments, so a little nagging to domestic investors. Think of our ancestors' great adage to beat the stone bridge, and even if you give more and eat less, it's safe now. Someone says on the show that uncertainty is a risk take, but if you take the wrong risk, you will die. Because there are such parts, it may seem a little cool for everyone to be looking at their faces now, but it may be wiser. That's what I'll say.

◇ Cho Tae-hyun: We need to approach more conservatively now. I think individual investors will approach the market too aggressively.

◆Cha Young-joo: You'll be in big trouble if you invest alone in reverse thinking.

◇ Cho Tae-hyun: That's not a reverse idea, it's just a sudden rush by yourself. I think it would be good to refer to these parts and adjust the water level appropriately. I heard that Chairman Chung Yong-jin is also going to Trump's inauguration, but the ball will be held that evening, and he will also attend. If this happens, what do you think about the possibility that it will be a good thing overall in terms of Shinsegae Group stocks?

◆Cha Young-joo: But investors have become very smart because the chairman is going to the ballroom, so it's not something that works, but it's going to a party. At parties, we usually don't talk about work at parties even though we watch our movies. It's just a matter of getting to know each other, but Chairman Chung Yong-jin would be almost a personal connection, but ultimately, it would be good to get to know each other, saying, "Do you also have Trump's personal connection?" And you even have a winery related to various consumption that Chairman Chung Yong-jin is doing in the United States. These are the parts that become such, but now Chairman Chung Yong-jin is leading like this, in a way, wouldn't Lee Myung-hee, the current general chairman of Shinsegae Group, completely give his son full power? Last time, Chairman Chung Yong-jin felt like he didn't participate in earnest because there was a distance within the group. This time, it is hard to say that this is a good thing because he brought his stake in E-Mart to his mother's and took responsible management last year, but fortunately, we expect Chairman Chung to play a role in his own independent consumption through his connections with President Trump's son. I think we should sort it out like this. What's unfortunate is that in terms of not being able to attend the inauguration ceremony even though Hyundai Motor and other companies have donated a lot, I will tell you that our companies need to work harder.

◇ Cho Tae-hyun: It is important to rent a company, but the role of the government to support it is also important, but there are many regrets about the government doing that now. So far, I have diagnosed various issues surrounding the stock market with Cha Young-joo, director of the I Asset Economic Research Institute. Thank you for talking today. Thank you.

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