Market uncertainty could persist until first half of 2027 amid high interest rates

Kwak Soo-jong predicted that market difficulties will continue until the first half of 2027 as rising oil prices and inflation create a vicious cycle of high interest rates. This environment could impact the AI industry, which requires an estimated $10.3 trillion in capital by 2031.

An analysis of recent global stock market volatility over the past three weeks has highlighted the gap between the growth of the AI industry and the high interest rate environment. Dr. Kwak Soo-jong analyzed that recent market turmoil stems not from an AI bubble, but from a chain reaction of rising oil prices, inflation, and the resulting high interest rates.

"AI is taking off, but the seatbelts haven't been unbuckled yet"

Dr. Kwak compared the current state of the AI industry to an airplane leaving the runway and in the process of taking off. He explained that while the AI industry has just begun its ascent and has not yet reached 10,000 meters, it has not reached an altitude where in-flight services (stable profit structures) can begin. In this process, interest rate issues are emerging and constraining the upward trend.

In particular, he diagnosed a difference in how the United States and South Korea view the scale and nature of AI. He emphasized that while South Korea focuses primarily on memory semiconductor chips, the United States deals with AI as a massive industrial ecosystem derived from power, computing, platforms, drones, bio, humanoids, and the space industry. Dr. Kwak defined AI in the United States as not being a bubble, whereas the AI discussed in South Korea has the characteristics of a bubble.

A vicious cycle created by rising oil prices and high interest rates

He pointed to rising oil prices due to the war in Iran and inflation as the fundamental causes of market turmoil. If the situation in Iran becomes prolonged, oil prices could rise to $130–$140 per barrel, which would stimulate inflation and make interest rate cuts difficult. If interest rates remain at high levels, a vicious cycle occurs where the cost burden on companies increases and returns fall.

The massive capital demand of the AI industry is also a variable. The amount of capital required for the AI industry is estimated to reach approximately $10.3 trillion by 2031. Considering the scale of funding needed by hyperscalers, including the Magnificent Seven (M7), the interest rate burden is a factor that could directly impact the profit structures of companies. Dr. Kwak viewed that this flow, starting from inflation and leading to oil prices, interest rates, and rising corporate costs, will continue.

Uncertainty to continue until the first half of 2027

Regarding the future market outlook, Dr. Kwak Soo-jong predicted that market difficulties will persist until the first half of 2027. He explained that if the war in Iran ends, the market expectation is that a shift toward interest rate cuts could occur from the second half of 2027. However, under the circumstances of a continuing war, it remains uncertain how monetary policy will unfold in conjunction with the United States' fiscal deficit problem.

He added that while China is also investing significant funds into the AI industry, both the United States and China will find it difficult to avoid impacts on the AI industry, such as the difficulty of maintaining low-cost structures if the United States restricts the supply of open source.

Source: original video (YouTube)