Stocks Can Rise Even at 5% Yields, Analysts Say

* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an AI-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.

1. Can High Rates and AI Coexist?

- Key points: An analysis argues that AI investment and a rising stock market can coexist even in a high-rate environment. The 12-month forward price-to-earnings ratio for the U.S. Standard & Poor's 500 stands at 19 to 20 times, implying an expected return of about 5%. Looking at the trend since 1990, downward pressure on valuations was stronger in the 5.5% to 6.0% range for the 10-year Treasury yield than at 5%. In periods when corporate earnings growth exceeds the historical average of 13.5%, the positive relationship between earnings growth and P/E ratios is pronounced, and if growth tops 20%, a P/E of 20 times can be justified even with rates above 5%. At the same time, the higher rates go, the narrower the range of advancing stocks becomes, which suggests that in Korea, semiconductors, brokerages, shipbuilding and energy — sectors with high profitability and low valuation burdens — are relatively well positioned.

2. National Pension Fund Plunges Nearly 200 Trillion Won in a Month on July Market Volatility

- Key points: The National Pension Service fund shrank by 182 trillion won in a single month. As of the end of July, the fund stood at 1,684 trillion won, down sharply from 1,866 trillion won at the end of June, though it remained up from 1,458 trillion won at the end of last year. The overall return fell to 14.84% at the end of July from 27.22% at the end of June, led lower by domestic equities, whose return dropped to 60.11% from 107.37% over the same period. Analysts attribute the decline to weakness in Korean stocks amid uncertainty over the war in the Middle East and inflation concerns, as well as to increased volatility following the introduction of single-stock leveraged ETFs.

3. No Deal Without U.S. Nuclear Terms; Iran Issue Unlikely to Be Resolved Before November

- Key points: With nuclear talks between the United States and Iran deadlocked, international oil prices and interest rates are both being shaken. U.S. President Donald Trump denied reports that he had offered sanctions relief and the release of frozen funds, and according to Bloomberg, Washington also rejected Iran's demand that a naval blockade and crude oil sanctions be lifted first in return for reopening the Strait of Hormuz. Iranian President Masoud Pezeshkian said his country has no intention of building nuclear weapons but will not give up its right to develop nuclear technology for economic purposes. Iranian officials see little chance of a deal before the U.S. midterm elections on Nov. 3. Brent crude, which climbed to $120 early in this year's war, has pared its gains, but if attacks resume and prices hold at $120 to $130, the U.S. Federal Reserve's terminal rate could move higher and growth could slow, according to the outlook.

4. Japan's Largest IB Daiwa Securities Gives Up Too, Exiting Korean Bond Market After 15 Years

- Key points: Daiwa Securities, considered Japan's largest investment bank, has shut down its Korean bond business after 15 years. It withdrew its Korea desk covering the debt capital markets — the bond issuance market — entirely, with the extended drought in deals since it arranged samurai bonds, or yen-denominated bonds issued overseas, for Shinhan Bank and KT last year cited as the direct reason. According to Bloomberg data, the combined market share of the top three arrangers of Korean paper — HSBC, Citigroup Global Markets Securities and Crédit Agricole — exceeded 40% for a second straight year, the highest level of concentration among Asia's major issuing countries. Meanwhile, foreign financial firms continue to scale back their Korean operations, with Citibank Korea reviewing a conversion to a foreign bank branch.

5. Lee Hyoung-il Pledges Emergency Buybacks if Treasury Yields Rise Excessively; Bond Prices Close Higher

- Key points: Treasury bond yields fell on the 29th, partly reversing the previous session's spike, as prices rose. The three-year treasury yield fell 0.043 percentage point to 4.076%, the five-year yield dropped 0.069 percentage point to 4.276% and the 10-year yield declined 0.063 percentage point to 4.476%. Wariness eased after Lee Hyoung-il, deputy prime minister and minister of finance and economy, told a Cabinet meeting that the government would immediately carry out market stabilization steps, including emergency buybacks, if yields climbed excessively. Reduced expectations of further rate increases by the Reserve Bank of Australia also helped push yields lower. Still, some observers say expectations for debt redemption may weaken after President Lee Jae-myung said excess tax revenue would be used for three core social policies: housing stability, jobs and inclusive finance. The U.S. 10-year Treasury yield also topped 5.2%, leaving supply-and-demand conditions and external rates as variables.

6. As ETF Growth Stalls, Products Under 5 Billion Won Are Pushed Out One After Another

- Key points: Total net assets of domestic ETFs slipped to 456.6064 trillion won, breaking their growth streak. That is 72.1691 trillion won, or 13.6%, below the record 528.7755 trillion won reached on June 19, a drop attributed to lower valuations for related ETFs as the KOSPI weakened on share price declines at Samsung Electronics (005930.KS) and SK hynix (000660.KS). In addition, six products from Kiwoom Asset Management and Korea Investment Trust Management whose principal stayed below 5 billion won for more than a month are moving toward delisting. Monthly new listings fell to 11 in August from 32 in May, with new offerings concentrated in narrow themes such as high-bandwidth memory and AI chips.