[Real Asset Management] Year-End Filled with Volatility, Not Direction... Time to Prepare for Next Year

U.S. Monetary Policy Uncertainty Persists
Need to Pace the Market and Select Leading Stocks
Don’t Chase FOMO?Build an Asset Allocation Strategy

As the year draws to a close, volatility in both domestic and international stock markets is intensifying. With global economic trends, the timing of interest rate cuts, and divergent policy directions among countries, the recent upward momentum is showing signs of stalling. The Korean stock market, in particular, is facing increased volatility due to the burden of this year’s sharp gains, supply-demand imbalances, and various uncertainties. Experts advise that rather than focusing on maximizing short-term profits, investors should prioritize risk management and prepare asset allocation strategies for the coming year.

Where Is U.S. Monetary Policy Heading... KOSPI Also Pauses

Above all, the most significant factor driving market volatility remains U.S. monetary policy. Even among Federal Reserve (Fed) officials, opinions are divided, heightening interest in the direction of the benchmark interest rate. The market continues to oscillate between expectations of an imminent rate cut and the possibility of prolonged high rates, resulting in ongoing instability.

In particular, the delayed release of employment and inflation data due to the U.S. government shutdown (temporary work stoppage) has failed to provide clear direction, leading the market to overreact to individual events and data points.

The minutes of the October Federal Open Market Committee (FOMC) meeting, released on November 19, noted that “many participants viewed holding rates steady in December as appropriate, while some supported further cuts.” In contrast, employment trends for September, announced on November 20, showed the unemployment rate rising to 4.44%, the highest since October 2021-a figure supporting additional rate cuts.

As a result, the likelihood of an additional rate cut in December is now virtually a 50-50 proposition. In this environment of unclear rate trajectories, overvalued assets are likely to experience greater volatility, and markets with a high proportion of exports and semiconductors, such as Korea, are expected to respond sensitively to foreign capital flows.

The Korean stock market has already risen at one of the fastest rates in the world this year. Since the beginning of the year, a rally led by semiconductor stocks supporting the artificial intelligence (AI) industry pushed the index above the 4,000 mark for the first time ever. Although recent foreign selling has brought the index back below 4,000, many view this as a temporary phenomenon. In fact, as valuations become more attractive again, analysts suggest that the domestic market is developing greater resilience to negative factors.

Han Jiyeong, a researcher at Kiwoom Securities, said, “Market volatility has increased sharply this month, with daily swings of 100 points becoming more common. However, the market is also developing a capacity for recovery after consecutive sharp price changes. While there has been record net selling by foreigners in the stock market through mid-month, it is difficult to say the market is facing a black swan event on the scale of March 2020 during the COVID-19 crisis.” Ultimately, the perception that foreigners have excessively sold KOSPI stocks is drawing bargain-hunting into leading sectors such as semiconductors, which could help the domestic market build downside rigidity.

Pacing the Market and Selecting Leading Stocks

Accordingly, there is a growing consensus that now is the time to moderate the pace and develop asset allocation strategies ahead of next year. Investors are advised to maintain cash positions while carefully selecting the stocks that will lead the market in 2026.

Hana Securities maintains that it is still the “era of equities,” attributing this to the “three super” phenomena: super-liquidity, super-polarization, and super-acceleration. They view KOSPI 5,000 not as a final destination but as a midway point toward a new horizon. Kim Dooun, a researcher at Hana Securities, predicted, “The momentum driving the market toward the 5,000-point level-such as the large-scale shift in household assets, ample sideline funds, pro-market policies, and global economic expansion-will become even stronger.”

As a survival strategy for the era of KOSPI 5,000, the firm continues to emphasize the importance of investing in leading sectors. Memory semiconductor prices are rising sharply due to supply shortages, and the expansion of AI investment led by Nvidia is expected to sustain the profit and stock price momentum of Korean semiconductor companies such as SK Hynix and Samsung Electronics. A weaker dollar is expected to directly improve the earnings of Asian companies, and a weak dollar policy is seen as inevitable for the revival of U.S. manufacturing.

Bookook Securities also considers sectors related to power supply, alongside AI, to remain promising. In the era of AI inference, the physical constraint of power shortages is becoming apparent, leading to a growing perception that “infrastructure matters more than chips,” and renewed attention to power infrastructure investment. The firm also highlights defense and shipbuilding as sectors to watch, noting that structural demand driven by security and regulation has secured years’ worth of visible order backlogs, making their earnings growth outlook for next year the most promising.

Don’t Chase FOMO-Build an Asset Allocation Strategy

With asset prices rising rapidly, the fear of missing out (FOMO) is intensifying, making asset allocation strategies even more essential. Immersing oneself in FOMO can lead to over-concentration in fast-rising assets, but these tend to be highly volatile, resulting in widely varying outcomes depending on timing.

The core of asset allocation is to build a portfolio with assets that have low correlations, thereby reducing return volatility and maximizing risk-adjusted performance. The key is not to monitor every asset class individually, but to trust that losses in some assets will be offset by gains in others.

Daishin Securities recommends a strategy involving the KOSPI 200, S&P 500, Korean government bonds, U.S. corporate bonds, and gold. Cho Seungbin, a researcher at Daishin Securities, advised, “Gold has emerged as a core investment asset as the correlation between stocks and bonds rises and global uncertainty expands. To fully leverage the tendency of the Korean won to weaken during crises, exposure to the dollar should also be carefully considered.”

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