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[2024 NH Macro Strategy] Slow economy vs election momentum

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The author is an analyst for NH Investment & Securities. He can be reached at bk@nhqv.com — Ed.

Although the Covid-19 pandemic has ended, it has impacted global policies and life patterns. Anti-globalization has accelerated, and the new Cold War has deepened, with regional wars erupting. While dramatic liquidity pumping and inefficient distribution of global resources have led to US growth and asset value growth, inflation and monetary tightening have appeared, as well. Nonetheless, people have resumed overseas travel and consumption for self-satisfaction.

That said, with interest rates remain high for longer than expected, rising interest payment burden has begun to weigh on consumer spending, with wealth polarization deepening further. The same applies in the corporate world. Companies with ample cash holdings are able undertake opportune investment for the future, whereas cash-strapped companies are struggling under the weight of rising funding rates. The firms that started AI investment early have widened the gap with competitors. Also, companies that are actively keeping up with social trends (boosting time efficiency) are increasingly in the spotlight.

With a series of political events scheduled for 2024, policy authorities will find it difficult to respond to even small credit risks in the same way that they used. Even so, stock market investment remains a viable option.

Economic outlook: Limited expansion

The global economy is unlikely to slip into a recession. Instead, it should expand, led by the US and the sectors that can endure mid-level interest rates. The US is forecast to remain in an expansionary phase, thanks to sound employment and

household financial conditions and low corporate inventories. As production improvement is being driven by supply chain reshuffling, AI investment, and industries with low inventory levels, a global economic expansion as a whole is unlikely.

In the US, effective mortgage rates are low and net interest expense at companies is on a decline. While the Fed’s rate upcycle is unlikely to affect the macroeconomy as a whole, the US economy could come under pressure in three to four years, as the portion of borrowers who have taken out high-rate loans increases and an growing number of corporate bonds reach maturity.

The theme is changing from globalization and quantitative easing to new Cold War and fiscal expansion. During the new Cold War era, we expect to see cost increase (from prioritizing political factors over efficiency), weakening dollar earnings and US TB buying activity, and greater fiscal spending in DMs (for security and energy).

Investment strategy: A confusing world; everything comes down to time

We expect the Kospi to range between 2,250~2,750p in 2024 and reach a peak in 3Q24.

Though stocks are to be less attractive from asset allocation perspective, momentum trading should be possible. We expect US private investment and the presidential election to be key momentum factors.

Korea’s export rebound is likely to be led by the semicon industry, on recovering investment by major US companies.

Investment idea: Invest in companies offering time-saving technologies or products

[2024 style and earnings outlook] In 2024, style investment efficacy is likely to weaken; we expect market attention to focus more on earnings turnaround visibility.

[2024 investment idea] In line with shifting consumer desire (toward wanting free time more than money), we recommend companies that: 1) offer time-saving technologies (Internet/IT solutions, pharma/bio); 2) establish infrastructure for time-saving technologies (semiconductor); and 3) offer entertaining content that can be enjoyed with increased free time (entertainment/game, apparel/cosmetics).

Issue analysis: Japan achieving advantage in leading-edge industries; how about Korea?

Since 2013, the growth of the elderly population portion has been peaking out in Japan. Hiring of young people is rising in Japan, whereas it is declining in Korea.

FDI inflow to Japan is on a steady climb. By offering subsidies, Japan has attracted major semiconductor companies specialized in foundry and memory chip making to build their factories in the country. In line, Japan is emerging as the biggest beneficiary of the new semiconductor cold war.

With semiconductor, robotics, and AI emerging as new cutting-edge industries, Japan is highly likely to wield a competitive advantage globally in advanced manufacturing. But, Korea is also capable of finding good opportunities, in our view.

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