From the perspective of foreign investors, the KOSPI index is at a similar level to its highs in 1989 and 2007, and the usefulness of long-term investment strategies is expected to decrease when the short-term fluctuation in the US stock market ends.
However, while large-cap stocks related to artificial intelligence may have further upside potential, other large-cap stocks are likely to decline, leading to a deepening ‘concentration in a small number of large, high-quality stocks’ phenomenon.
As long as the US Federal Reserve's policy of prolonged high interest rates continues, the US stock market is likely to maintain a temporary support without a sharp decline.
(Continued from the previous 3 parts...)
However, if we consider this from a foreign perspective, reflecting the exchange rate effect to some extent, it looks different.
Below is a chart created by dividing the KOSPI index by the KRW/USD exchange rate to reflect the value of the Korean Won.
For foreigners, the peak points of the bull markets in 1989, 2007, and the 3300-point mark in 2021 would have appeared as the same high-point level in terms of trends.
And now, how does the current KOSPI index appear in terms of its technical position to foreigners?
If the current minor fluctuation in the US stock market, which has been continuing in the short term, shows signs of ending, then the index-based strategies, such as the buy-and-hold strategy for SPY, QQQ, or TQQQ, which have been ongoing for a considerable period, may no longer be meaningful.
However, the game for individual stocks such as Nvidia, which are core AI stocks, may still continue...
This means that even if the index is stagnant, AI big tech companies can still go further. However, among large-cap stocks, excluding those related to AI, if other stocks start to decline one by one, a period of increased concentration in a small number of large, high-quality stocks may appear for a considerable period before that time comes.
The US stock market's overall index has almost exhausted its upward momentum and is nearing an end. Instead, it still has the "ability to withstand a fall," which will serve as a "temporal" barrier. Big tech companies will likely play this role again.
Until the inversion of the US Treasury yield curve is completely resolved, not just temporarily for a few days, and the Fed's prolonged high-interest-rate policy (H4L) ends, the US will likely avoid pushing the stock market into a long tunnel.
Judging from yesterday's Nasdaq's slight recovery thanks to Powell's speech, the US stock market seems to be aiming for a gradual increase in its high points for a few more days. It seems more time is needed...
I suddenly remember a joke I made with a friend about a stock market crash similar to the Great Depression. lol
"How can the index fall by half, or even 1/10th? Is that even possible?"
"It's possible. First, it rises 5 times, then falls to 1/10th. That would be the same position as a 50% drop from the current level."