Daily Commentary

MarketMinder’s View: As trend-setting nations go, South Korea seems hard to beat. Take stocks. Budding pockets of euphoria (AI and Tech) in America are on full display in Korean markets. The benchmark Korea Composite Stock Price Index’s (KOSPI’s) “... spectacular ascent has morphed into one of the market’s most bewildering reversals. The KOSPI has plunged into a bear market, shedding a quarter of its value since late June, yet remains by far the world’s best-performing major equity market this year. The whipsaw highlights both the power and peril of South Korea’s AI-fuelled stock boom. Explosive earnings growth at semiconductor giants Samsung Electronics and SK Hynix continues to underpin the investment case. But a rally turbocharged by margin debt, concentrated in just two stocks and increasingly disconnected from the broader economy, has left regulators wary and investors exposed to violent swings.” (As ever, please note MarketMinder doesn’t make individual security recommendations—our interest is in the broader theme only.) For investors, we think Korea’s performance this year highlights two lessons for global investors. First: It underscores the importance of monitoring sentiment. As Sir John Templeton famously observed, “bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Now, euphoria itself doesn’t cause a bear market. That is when expectations far exceed what reality can possibly deliver. As the article hints, “explosive earnings growth” helps fundamentally support stocks. But euphoria can make the market more fragile and prone to almost any disappointment that hits. Second, Korea’s hot performance reflects the movement of only two stocks that account for over half of the KOSPI—highlighting the issues with smaller stock markets. Just as a handful of highflyers aren’t all telling about the S&P 500, two hot stocks in Korea don’t signal unhinged optimism in global markets. They provide a window into what true euphoria may look like, but they don’t mean the global bull market is about to run out of wall of worry to climb.

MarketMinder’s View: This is a good, detailed look at a new push by a number of individual banks to create an interbank money transfer network on the blockchain, which many refer to as a stablecoin. (The coverage touches on several individual banks, so keep in mind we don’t make individual stock recommendations.) These banks, leveraging the network built by The Clearing House, the unseen system behind direct deposit transactions, are stepping up efforts to produce a potentially instantaneous, low-cost, maybe even international system allowing for secure money transfer on the blockchain. Many have long talked of stablecoins and the blockchain as revolutions that could upend the existing banking system, but the reality was always reversed: Banks were much more likely to adopt blockchain technology and block out new entrants, just as in past innovations like the development of Zelle, noted herein. This also follows last month’s announcement that traditional payment technology firms will dive into OUSD, a consortium of 140 financial firms and payment tech companies using the blockchain. Existing firms simply have trust, relationships, networks and assets that can leverage this technology very effectively. All in all, nothing in this is a huge source of future profit. This is more about enhancing service and crowding out a potential source of competition.

MarketMinder’s View: This article touches on a hot-button political issue and wades into electoral politics in the process, so please note MarketMinder favors no party nor any politician. The hot-button issue? Construction and permitting of data centers, cloud-computing hubs central to AI development and growth. Data centers gobble up power and water, so the attendant fear is they will drive up voters’ utility bills—and they are unpopular as a result. Hence, New York Governor Kathy Hochul is bending to legislative pressure and implementing a one-year moratorium on large data center permits (although those already in process will proceed). It is the nation’s first statewide pause, although local blowback is common. While we get the idea of this, there is a counterpoint: Investment into these facilities—while not the only factor driving economic growth—is a notable contributor to it. If such cancellations and broad bans become more widespread, it could interrupt this investment, which tallies into the trillions of dollars. Markets, which already see that investment, could see a shock from sweeping cancellations. While the current scale is too small to wallop stocks, this is a possible risk we are watching.