[Market Insight] "No Abnormality in US Economy... Focus on Accelerating AI Innovation"

Interview with Dongwon Yoo, Head of Global Asset Allocation Division at Yuanta Securities

"The current U.S. economy is healthy. Now is the time to focus not on interest rate levels or recession concerns, but on which industries will generate new innovations that create added value and enrich our lives. That industry is undoubtedly artificial intelligence (AI)."

Yoo Dong-won, Head of Global Asset Allocation Division at Yuanta Securities. Photo by Heo Young-han younghan@

On the 28th of last month, at the Yuanta Securities headquarters in Euljiro, I met with Dongwon Yoo, Head of Global Asset Allocation, who shared this outlook for the global stock market this year. Mr. Yoo is a global investment strategy expert with 30 years of experience as an analyst and market strategist. He has worked at Citigroup, Woori Investment & Securities, Kiwoom Securities Global Research Center, and currently leads Yuanta Securities' Global Asset Allocation Division.

He explained, "This year, the U.S. stock market will be influenced by interest rate policies and the presidential election, but the fact that it is a long-term bull market remains unchanged. In particular, attention should be paid to the AI industry, which is driving productivity innovation."

U.S. Economic Fundamentals Remain Strong... Delinquency Rates Not a Concern

Mr. Yoo judged that there is no need to worry about interest rate levels or recession in the current U.S. market. He said, "In 2022, the inversion of the long- and short-term interest rate spread began, and many people worried about the recession that would follow. However, the recession did not occur. It is necessary to consider the logical flow for the inversion of the yield curve to lead to a recession. I have repeatedly said that the possibility of a recession occurring despite the inversion is very low because the fundamentals of households and companies and the loan-to-deposit ratio situation were different from previous cases," he explained.

He continued, "The economic situation of U.S. households and companies remains stable. Since the fourth quarter of last year, private loans in the U.S. have increased again, but the delinquency rate has risen by only about 0.1% per quarter, which is not a level to be concerned about," he analyzed.

Mr. Yoo cited the U.S. presidential election as one of the variables that will affect the stock market this year. He said, "Analyzing past election cycles, the year with the highest returns was the year immediately before the election, followed by the election year itself. Especially in the election year, returns were good from June to the end of the year. Also, stock price increases were higher when the Republican Party won compared to the Democratic Party," he explained.

However, he advised caution regarding China's financial system crisis over the next five years. He said, "It is necessary to continuously monitor China's external debt and foreign exchange reserves ratio. If the situation worsens, a financial system crisis could occur within five years. To manage risk, it will be necessary to adjust the proportion of assets invested in China," he said.

The Key Is Not Interest Rate Cuts but "AI Innovation"

Since the end of last year, the common denominator explaining the global stock market has been 'interest rate cuts.' Recent inflation indicators are testing the patience of investors expecting rate cuts. However, Mr. Yoo said the core issue in judging the current market is the innovation that the AI industry will bring. He warned, "An appropriate adjustment is necessary for private economic agents facing funding difficulties due to high interest rates, but if the pace of rate cuts is too fast, side effects could worsen as they did during the dot-com bubble." He assessed, "The most appropriate pace of rate cuts is up to 0.75% per year."

He identified AI as the sector investors should focus on above all else. Mr. Yoo said, "Since the third quarter of last year, productivity has rapidly increased, driven by AI innovation. This pace exceeds the levels seen when the internet began to activate in the 1990s," and predicted, "Going forward, productivity improvements from AI will contribute to stable economic growth."

Additionally, Mr. Yoo mentioned the industrial ripple effects that AI innovation will bring. He explained, "Technological innovation is 'non-linear.' No one can predict the scale to which the current AI cycle will grow, nor should they try to pre-judge it. The cost savings and productivity improvements created by AI innovation will significantly contribute to reducing risks and increasing the success rate in new drug development, so the bio sector should also be noted," he said.

Companies Sustaining Innovation Will "Value Up"... Contributing to the Formation of a Long-Term Investment Culture

Recently, before and after the government's announcement of the corporate value-up program, the domestic stock market experienced sharp fluctuations in low price-to-book ratio (PBR) stocks. Mr. Yoo advised investing not simply in undervalued companies but in those that return profits to shareholders through sustained innovation. He explained, "Because many industries in our stock market are sensitive to the economy, investments should be made in companies in the upcycle of the economic cycle, which currently is semiconductors. At the same time, companies that innovate themselves and respond to government policies can create structural 'value-up,'" he explained.

Mr. Yoo's goal is to continuously manage trustworthy products for global investment over the long term. He said, "I will present expertise with a sense of mission and responsibility in global investment. Only by investing with a long-term perspective can compound interest effects be obtained. Through investment products that the public can trust and entrust, we will enable wealth to grow through compounding," he said.

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