SK Securities analyzed on the 27th that although U.S. Government Bonds yields have returned to mid-2000s levels, the current KOSPI valuation burden is not large. However, it pointed to a correction in U.S. stocks, a slowdown in the semiconductor cycle, and a further rise in U.S. Treasury yields as key risk factors.
Researcher Kang Dae-seung at SK Securities said, "On the back of high oil prices, diminished expectations for Federal Reserve (Fed) rate cuts, and inflation concerns, U.S. Treasury yields rose sharply," noting, "the 30-year yield surpassed 5%, the record high since 2007, and the 10-year at one point topped 4.6%."
He added, "The current level of rates is historically similar to the average rate range from 2003 to 2007," analyzing, "based on a 4.3%–4.7% range for the 10-year U.S. Treasury, the real yield (TIPS) and expected inflation (10-year BEI) are also at similar levels to that period."
SK Securities assessed that even under the same rate environment, the valuation burden differs significantly between the U.S. and Korean stock markets.
Kang said, "The S&P 500 traded at about 15 times the 12-month forward price-earnings ratio (PER) on average during 2003 to 2007 when the 10-year U.S. Treasury was at current levels, but it is now around 21 times, meaning the multiple is about 40% higher despite the same rate environment."
By contrast, he assessed the KOSPI as having a relatively lower burden. He explained, "From 2003 to 2006, the KOSPI's 12-month forward PER averaged 7.7 times, with a median of 7.5 times, and the band was 5 to 10 times," adding, "the KOSPI's current PER is about 8 times, which corresponds to the average level of that period."
SK Securities presented three key risks that will determine the market's direction ahead.
The first is weakening risk appetite. Kang said, "If the U.S. stock market, where valuation burdens are high, undergoes a correction, the Korean market is unlikely to be free from a sympathy decline," adding, "we should watch the level of margin lending balances, the U.S. savings rate, and market reactions to increased monetary policy uncertainty."
The second is the possibility of downward revisions to corporate earnings per share (EPS) forecasts. He analyzed, "The KOSPI's low PER at present assumes that the 12-month forward EPS consensus will be maintained," adding, "if expectations for the AI investment cycle fade or the semiconductor cycle slows, EPS downgrades and PER increases could occur simultaneously, rapidly expanding the valuation burden."
The final risk is the possibility that the 10-year U.S. Treasury yield breaks above 5%. Kang said, "In the 2000s, the upper bound for the 10-year U.S. Treasury yield was about 5.2%," diagnosing, "if the 10-year breaks above 5%, comparisons with that period's band become meaningless, and as the appeal of bond investing rises, downside pressure could broaden across the stock market."