Investment advice regarding corporations that investors should pay attention to has emerged as the gap between short and long-term interest rates widens and credit risk remains at a low level.
Lee Jae-man, a researcher at Hana Securities, analyzed in a report on this day that "With the U.S. short and long-term interest rate gap (10-year bond - 2-year bond) turning upward, the high-yield credit spread (credit risk) has maintained a low level after peaking in April," and noted, "The increasing likelihood of a Federal Reserve (Fed) interest rate cut in September is having an impact.
The researcher believes that the gap between short and long-term interest rates is likely to widen further, as short-term interest rates are falling faster than long-term rates. As evidence, he pointed out that the net issuance of U.S. government bonds in the third quarter will surge to $1 trillion, compared to $50 billion in the second quarter, and that tariff factors could keep expected inflation high.
According to Hana Securities' analysis, there was no difference in the average monthly growth rates (3.3%) of growth and value stocks within the Standard & Poor's (S&P) 500 index, as the gap between short and long-term interest rates widened and credit spreads decreased. However, the Russell 2000 index, which focuses on small- and mid-cap stocks, recorded a relatively high growth rate (3.9%). Similarly, in Korea, KOSDAQ showed better stock performance than KOSPI under similar conditions.
The researcher stated, "The decline in short-term interest rates reduces corporations' interest expense, leading to improved free cash flow," and added, "Especially for corporations with a high leverage ratio (total assets/total capital), the effect on return on equity (ROE) is greater, resulting in relatively higher stock returns." He also noted that with rising labor costs, the increase in revenue per capita should be considered.
In the U.S., notable companies that fit this condition include Nvidia, Apple, Visa, Netflix, Mastercard, Palantir, Johnson & Johnson, IBM, RTX, and Walt Disney. In a similar situation in Korea, SK hynix, Samsung Biologics, HD Hyundai Heavy Industries, NAVER, and Hanwha Ocean were suggested as promising investment candidates.