[2024 Risk Management] ① "Diversify and Invest Regularly with ETFs Instead of Individual Stocks"

US Interest Rate Fluctuations... Increased Preference for Risk Assets and Blue-Chip Stocks
Effective Asset Allocation in Domestic and International Stocks and Bonds
Focus on Korean Defense Industry, Japanese Semiconductors and Materials, and US Long-Term Bonds

Editor's NoteLast year, the investment market was shaken by the US interest rate hikes and geopolitical conflicts. Now it is 2024. This year, the US is expected to gradually lower its benchmark interest rate. Important elections in various countries, including the US presidential election and the South Korean general election, are also scheduled one after another. Amid various variables, what strategies should investors adopt? We met with experts from major domestic asset management companies specializing in exchange-traded funds (ETFs), stocks, and pensions to review last year's investment market and discuss risk avoidance measures and investment strategies for this year.

Three experts interviewed by Asia Economy?Kim Seong-hoon, Head of ETF Business Division at Hanwha Asset Management; Song Jun-hyuk, Head of Growth Division at Baring Asset Management; and Son Su-jin, Head of WM Pension Marketing Division at Mirae Asset Management?emphasized the importance of diversification and systematic investment from a risk management perspective as an investment strategy for 2024. Proper diversification between stocks and bonds can provide a buffering effect. They especially encouraged active diversification through exchange-traded funds (ETFs). They also stated that efforts to accurately assess the appropriate stock price are essential to increase returns. The market volatility this year is expected to be high due to a series of major elections in several countries, the US interest rate cuts, and economic factors. The conflict between the US and China was also cited as a variable.

Kim Sung-hoon, Head of ETF Business Division at Hanwha Asset Management [Photo by Hanwha Asset Management]

"Stock investment is investing in the future value of a specific company. Last year, opinions differed on whether the valuation (stock price level relative to corporate value) of certain themes such as secondary batteries was appropriate. When stock prices rise due to supply and demand issues, price adjustments inevitably follow after some time."

This is what Kim Seong-hoon, Head of ETF Business Division at Hanwha Asset Management, said during a recent meeting at the Hanwha Financial Center in the 63 Building, Yeouido, Seoul. This year is expected to be the year when the US interest rate cuts will be fully implemented. He identified three sectors expected to perform well in this market environment: ▲ domestic defense industry ▲ Japanese semiconductors ▲ US long-term bonds.

Regarding the domestic defense industry, Kim emphasized, "Following semiconductors and secondary batteries, it has established itself as a new export industry in South Korea. Above all, defense generates sales not only from exports but also from maintenance and management. With ongoing geopolitical conflicts worldwide, the importance of the defense industry will continue to attract attention," he stressed. It is also competitive. He said, "In the over 70 years of confrontation between North and South Korea, South Korea has continued to invest in and develop 'conventional weapons' like the K9 self-propelled howitzer, which are crucial in actual combat. This differs from overseas developments focused on cutting-edge weapons," adding, "Unlike American and Russian products, Korean weapons carry less political burden related to imports. In the current global situation where defense demand is increasing, cost-effective Korean conventional weapons that operate in temperatures ranging from 40 degrees Celsius to minus 20 degrees Celsius are gaining attention," he said.

He also pointed out the Japanese semiconductor materials, parts, and equipment (SoBuJang) sector as an investment area to watch. Kim explained, "Japan has implemented various tax benefits and subsidy policies to end its 'lost 30 years,' and these effects have begun to bloom under the Kishida administration. The weak yen phenomenon caused by the interest rate differential with the US has positively impacted export companies' performance, and the Japanese stock market performed very well last year," he explained. He added, "Especially, the semiconductor sector has been the biggest beneficiary of supply chain restructuring due to US-China conflicts. Japan holds global competitiveness and patents in the SoBuJang sector. Even if the yen appreciates somewhat in the future, these benefits will continue," and said, "investors should pay attention to products that invest in Japanese SoBuJang companies while also enjoying currency exposure effects."

US long-term bonds were also selected as a good investment alternative. "Recently, individual investors have increased investments in long-term bonds with long durations (the time it takes to recover investment) in anticipation of interest rate cuts. In the long term, as the likelihood of the US freezing or lowering interest rates increases, demand for long-term bonds will grow further," he explained.

Furthermore, given the many expected variables this year, he emphasized the importance of diversification and systematic investment from a risk management perspective. He advised, "The time when specific stocks and themes become issues among many investors is often when short-term peaks have already formed. At such times, it is necessary to take a breath and look at things calmly," adding, "Rather than taking on risk by approaching individual stocks, stable, systematic, long-term investment is advantageous," he advised. "Similarly, even if the returns on the stocks you invested in turn negative, if there is potential for long-term growth, it is good to consider it a temporary adjustment period and continue with systematic investment," he also said.

As a method of diversification, he recommended investment through exchange-traded funds (ETFs). ETFs are funds listed on the securities market that can be bought and sold like stocks, with returns determined according to a specific index. Kim said, "For ordinary individual investors investing small amounts, the competitiveness of products is much higher with ETFs," adding, "Many also invest in ETFs in pension fields such as retirement pension savings or individual retirement pensions (IRP), aiming for long-term investment at much lower costs than funds."

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