US AI Investment Surge Causes Labor Market Polarization... Why is the Korean Stock Market Being Left Behind?

As the US stock market continues its upward trend, breaking all-time highs, an analysis has emerged to examine the reasons behind the relatively sluggish performance of the Korean stock market and the future trends of the asset market. In this analysis presented by economist Hong Chun-uk, how US economic indicators and the specific characteristics of the AI industry are affecting the global economy and the Korean market is discussed in detail.

The Link Between the US ISM Index and Korean Exports

The ISM Manufacturing Index, which indicates the flow of the US manufacturing economy, is used as a key indicator to predict the direction of Korean exports. According to economist Hong Chun-uk, whenever the US ISM Manufacturing Index rises strongly above the 50 level, Korean exports also tend to be revitalized. This is because the major customers for Korean exports are manufacturers in advanced countries such as the US and Europe. In fact, the case where Korean exports received strong momentum when the US ISM Manufacturing Index jumped from below 50 to the early 50s at the end of last year supports this. Recent indicators are also moving around 55, showing that many view the economy optimistically.

The Solo Run of the AI Industry and the Phenomenon of Labor Market Polarization

In the recent global economy, as capital concentrates on the AI industry, the gap between AI and non-AI industries is showing a pattern of deepening. As the five major US hyperscalers (such as Oracle, Microsoft, etc.) undertake massive investments of 800 billion dollars this year and 1.2 trillion dollars next year, the earnings outlook for AI-related companies is improving sharply. While these investments trigger demand in related industries such as data center construction and power grid expansion, they simultaneously cause structural changes in the labor market.

In particular, the advancement of AI technology is pointed out as a factor deepening the polarization of the employment market. Unlike the fields where AI investment is concentrated, there are concerns that white-collar jobs centered on existing knowledge workers may decrease. In fact, looking at the unemployment rate by age group in the US, the unemployment rate for those in their 20s soars to 7–8%, while the unemployment rate for those in their 40s and 50s, where hiring is centered on experienced workers, remains at the 3% level, showing a stark difference. This suggests that the boom in the AI industry is not directly linked to employment stability for the entire economy but is concentrated only in specific fields.

Undervaluation of the Korean Stock Market and Rebalancing Strategy

While the US stock market holds up thanks to the upward revision of earnings outlooks for AI companies, the reason the Korean stock market cannot gain momentum is summarized by valuation and supply-demand issues. Based on the PBR (Price-to-Book Ratio) band of MSCI Korea, economist Hong Chun-uk analyzed that the current Korean stock market is in an expensive zone compared to historical valuations. During the market adjustment process in June and July, the situation where individual investors are stuck with more than 170 trillion won based on the KOSPI, along with the deterioration of foreign supply and demand due to fluctuations in the value of the Korean won against the dollar, are acting as factors that lower the attractiveness of the Korean market. As a result, an environment has been created where funds are being sucked into the US.

In such market conditions, 'rebalancing' (asset reallocation) is suggested as a response strategy. Hong explained that since it is impossible to judge the exact bottom and top of the market, it is effective to stay in the market but use a strategy of moving assets from overvalued markets to undervalued markets. The analysis suggests that if one had realized profits when the Korean market was overheated in May and June this year and moved assets to US stocks or US long-term treasury bonds, they could have defended assets or made profits amidst the current US stock market rally or treasury bond price trends. He emphasized that even amidst rapid market volatility, distinguishing between overvalued and undervalued assets and responding accordingly is the way to steadily grow assets.

Source: original video (YouTube)