[Chasing ETFs] ② Bond ETFs in the First Half, Technology Theme ETFs in the Second Half

High Interest Rates, Exploiting the Bottoming Tech Stocks Situation Strategy
Focus on National Policy Directions in Advanced Technology Sector

Editor's NoteAs signals of an economic recession strengthen, individual investors are growing increasingly anxious. Even if they want to invest, it is difficult to find suitable investment destinations. Although it is a high-interest-rate era, banks lower deposit rates under government pressure, which is unsatisfactory. The real estate market is in deep winter, requiring large sums of money, making it hard to take the plunge. At the same time, investing in individual stocks in the stock market does not bring peace of mind. For such investors, Exchange-Traded Funds (ETFs) are worth considering. Combining the advantages of stocks and funds, ETFs can be freely bought and sold in real time like stocks. Moreover, the lineup is diverse, ranging from products that gather multiple stocks like funds to those that track the movements of specific indices such as domestic and international stocks, bonds, real estate, commodities, infrastructure, and futures. Buying just one share of an ETF can provide the effect of diversified investment across multiple stocks.

[Asia Economy Reporter Park So-yeon] Market experts cautiously predict the rise of bond-type ETFs in the first half of this year and the revival of advanced technology-themed ETFs in the second half. This is because the current high interest rate level is maintained, and the advanced technology stocks that underperformed last year have not yet entered a recovery cycle.

You can enjoy the high-interest-rate environment with maturity bond-type ETFs. Depending on investment objectives, diversified investment is possible, and products can be selected with various combinations such as long- and short-term, domestic and international bonds, bank bonds, and corporate bonds according to monetary policy and economic conditions. Bond-type ETFs can be traded on Home Trading Systems (HTS) or Mobile Trading Systems (MTS) just like stock trading. For investors who are uncertain about market direction, short-maturity bond ETFs are recommended. Currently, the interest rates of maturity bond-type ETFs listed domestically are around 3-4%. Maturity bond-type ETFs are liquidated upon maturity, returning the principal and interest promised to investors. While deposits and bond investments are not possible in personal pensions, bond-type ETF investments are allowed, making them highly useful.

Another way to invest in bond ETFs is by predicting the direction of market interest rates. Since bond-type ETFs have characteristics of both stocks and bonds, if you can predict the direction of market interest rates, you can invest more actively. Generally, the direction of interest rates is fixed, making it easier to determine investment direction than with ordinary stocks. Bond market interest rates are generally influenced by policy rates (the benchmark rates set by central banks), and the cycle of interest rate direction?whether rising, steady, or falling?is long, so unless there is a major issue, investors can prepare for bond investments at transition points. When the rapidly rising interest rates stabilize to some extent or shift to a downward trend, investment profits can be gained through ETFs with a certain duration (price sensitivity to interest rate changes).

Bond prices generally move inversely to interest rates. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. In other words, buying bonds when interest rates are high allows you to gain capital gains as bond prices rise during periods of falling interest rates. The same applies to bond-type ETFs. Therefore, if interest rates are expected to decline, it is advantageous to buy bond-type ETFs that include long-term bonds with large price fluctuations.

There is also optimism that technology-themed ETFs, which underperformed last year, may recover and rise this year. Experts advise that since the market value of domestic and international big tech companies declined significantly last year, a rebound is worth anticipating. Kim Do-hyung, head of the ETF Consulting Team at Samsung Asset Management, said, "If the global central banks' tightening stance comes to an end, further valuation adjustments for technology themes or growth stocks are expected to be limited."

However, repeated warnings about economic slowdown remain a burden. Kim said, "Since the U.S. Federal Reserve's monetary policy focuses on inflation, the stock market is expected to fluctuate whenever inflation and employment indicators are released." Due to ongoing macroeconomic uncertainties, companies that can immediately generate cash flow through operations are expected to attract attention.

An effective approach is to gradually purchase ETFs holding high-quality technology stocks that can endure recessions with solid fundamentals and have the potential for significant rebounds during economic recovery. Instead of concentrating investments on specific companies, it is recommended to gradually buy ETFs composed of companies belonging to promising industries or sectors, as well as representative index ETFs investing in economies with robust domestic demand such as the U.S.

Promising industries include secondary batteries, renewable energy, and semiconductors, which are expected to grow steadily due to increasing interest in climate change and the environment. This year, growth and technology-themed ETFs are anticipated to have opportunities, presenting a different picture from the attention growth and technology-themed ETFs like electric vehicles received immediately after the COVID-19 pandemic.

This is related to geopolitical risks, deglobalization, and the policies of governments worldwide. Not only the U.S. and China but also European countries have undergone a shift in thinking about supply chains following the COVID-19 pandemic and the Ukraine-Russia war. Kim Jung-hyun, head of the ETF Management Center at Shinhan Asset Management, advised, "We are in an era where government policy directions influence the performance of thematic investments more than ever before," adding, "Focus should be placed on the policy directions of each country in advanced technology fields such as energy, semiconductors, and secondary batteries."

This content was produced with the assistance of AI translation services.