▲ AI PRISM* Personalized Economic Briefing
* Editor's note: "AI PRISM" (Personalized Report & Insight Summarizing Media) is an artificial intelligence-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six news items tailored to each reader type.
[Key Issues Briefing]
■ Treasury yields surge: Korean treasury bond yields rose across the board on the 28th in the wake of surging U.S. Treasury yields. The yield on three-year treasury bonds closed at 4.119%, up 0.113 percentage points from the previous session and the highest level since November 2022, while the five-year yield climbed to 4.345% and the 10-year yield to 4.539%. Analysts said Korean treasury yields absorbed the full impact of the U.S. Treasury yield spike during the Chuseok holiday, with no offsetting factors emerging. The Bank of Korea held a market conditions review meeting the same day and said it would closely monitor the potential for greater volatility in domestic financial and foreign exchange markets.
■ Growth index reshuffle: The regular FTSE Russell index review in June this year significantly changed the composition of the Russell 1000 Growth Index. As memory stocks moved from the value index to the growth index, the weighting of semiconductor and semiconductor equipment companies expanded to 33.1% from 24%, while the weighting of the Magnificent Seven (M7) fell to 43.1% from 52.8%. Because of the nature of market capitalization weighting, companies whose share prices have already risen sharply receive higher weightings, which can increase concentration in specific industries, analysts said. The case in July this year, when shares of some large memory companies plunged more than 25% in a single month, illustrated that risk.
■ Deepening won weakness: Downward pressure on the won intensified again as U.S. Treasury yields climbed to their highest level since 2007 and the dollar strengthened. Analysts attributed the move to a combination of Middle East-driven inflation concerns, the Federal Reserve's hawkish stance and instability in U.S. Treasury supply and demand. Foreign investors also expanded net selling of Korean stocks, increasing dollar buying demand, and the won-dollar exchange rate closed at 1,365.10 won. Market watchers said the currency could fluctuate in the 1,350 to 1,370 won range for the time being depending on external variables and supply and demand.
[News of Interest to Global Investors]
1. 3-Year Treasury Bond Yield Tops 4.1% on U.S. Rate Surge
- Key points: In the wake of surging U.S. Treasury yields, the yield on Korea's three-year treasury bonds closed at 4.119% on the 28th, the highest level in three years and 10 months, while the five-year yield rose 0.125 percentage points to 4.345% and the 10-year yield rose 0.147 percentage points to 4.539%. During the Chuseok holiday, the U.S. 10-year Treasury yield topped 5.2%, the highest since June 2007, and the 30-year yield exceeded 5.5%, the highest since May 2004. The moves were attributed to U.S. inflation concerns, solid growth and the possibility of a rate increase in October. A bond manager at one securities firm said Korean treasury yields rose sharply after foreign investors sold treasury bond futures following the surge in U.S. Treasury yields.
2. [Investment Window] Find Tomorrow's Winners
- Key points: Following the regular FTSE Russell index review in June this year, the weighting of semiconductor and semiconductor equipment companies in the Russell 1000 Growth Index expanded to 33.1% from 24%, while the M7 weighting fell to 43.1% from 52.8%. Analysts called the change natural given the central role that chip, memory and equipment suppliers play in building AI infrastructure. However, they said that after the reshuffle, semiconductor and semiconductor equipment stocks account for nearly half of the index's beta, creating a structure heavily exposed to semiconductor industry conditions and individual stock volatility. They warned that a concentrated portfolio could face greater risk if conditions change, through the emergence of disruptive technology, a slowdown in semiconductor demand or a failure of AI capital expenditure to translate into earnings.
- Key points: Downward pressure on the won widened again as U.S. Treasury yields climbed to their highest level since 2007 and the dollar strengthened during the Chuseok holiday. According to the Bank of Korea's overseas offices, as of the 25th, the U.S. two-year Treasury yield stood at 4.85%, the five-year at 4.99%, the 10-year at 5.16% and the 30-year at 5.49%. Bond buying sentiment weakened after a U.S. Treasury buyback totaled $4.08 billion, short of the $6 billion limit, and a five-year auction also drew weak demand. In the market, JPMorgan, Goldman Sachs and Citi focused on greater volatility from supply and demand pressure and position unwinding, while Bank of America and Citadel cited structural upward pressure on rates from expanding AI infrastructure investment, reflecting diverging views.
[Reference News for Global Investors]
4. Was Huawei Not Enough? China Weighs Allowing Purchases of Nvidia Chips [Global WHAT]
- Key points: The Chinese government is reportedly considering allowing domestic companies to import Nvidia's latest AI semiconductors. The Information reported on the 27th, citing sources, that China's Ministry of Industry and Information Technology had told ByteDance, Alibaba and others that it planned to approve purchases of Nvidia's new RTX Pro 5500 chip. The chip is a workstation product, but installing eight of them in a single server makes it usable for running AI models in data centers, and ByteDance is said to be considering an order of about 1 million units. However, actual approval remains uncertain, as U.S. President Donald Trump recently made remarks aimed at containing China, saying that it is China that benefits from slowing down AI, and U.S. export controls on high-performance chips remain in place.
- Key points: Samsung Electro-Mechanics will invest a combined 6.78 trillion won in its Sejong plant and in Vietnam to strengthen its leadership in the AI semiconductor substrate market. Of that, 4.27 trillion won will go toward expanding package substrate capacity at the Sejong plant, the largest investment tied to a single product in the company's history and equivalent to 43.6% of its consolidated equity last year. The company said the large-scale investment reflects rapidly growing demand for flip-chip ball grid array (FC-BGA) substrates used in AI accelerators and server central processing units (CPUs) as generative AI spreads. Meanwhile, the securities industry consensus for Samsung Electro-Mechanics' third-quarter operating profit stands at 605.1 billion won, 2.3 times the 260.3 billion won posted a year earlier.
- Key points: Shares of builders with strengths in nuclear plant construction have continued to climb, with Daewoo Engineering & Construction closing at 18,670 won on the 28th, up 7.05% from the previous session, while Hyundai Engineering & Construction (000720) and GS E&C (006360) rose 1.82% and 2.02%, respectively. Daewoo Engineering & Construction's share price is five times its closing price of 3,820 won on the final trading day of last year. Daewoo Engineering & Construction is nearing a main contract for the Dukovany nuclear plant in the Czech Republic, while Hyundai Engineering & Construction signed a basic design contract with Fermi America of the United States for four large nuclear reactors, pointing to rising prospects for overseas orders. An official in the securities industry said companies with the potential to upgrade overseas operations centered on specialized plants will continue to draw attention, given the difficulty of finding growth momentum at home amid a housing market slump and stagnant social overhead capital (SOC) spending.
▶Read the article: 3-Year Treasury Bond Yield Tops 4.1% on U.S. Rate Surge
▶Read the article: Samsung Electronics' Cooperative Union Elects Next Chairman, Signals Hard Line on DX Bonus Disparity
▶Read the article: KOSPI Trading Loses Steam; Turnover Ratio at Year's Low of 0.5%
