▲ AI PRISM* Personalized Economic Briefing
* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an artificial intelligence-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six news items tailored to each reader type.
[Key Issue Briefing]
■ Leveraged bets backfire: With artificial intelligence-related shares under pressure for months on concerns about excess capital spending, Kioxia Holdings has fallen 63% from its record high. With trading value also down 84% from its peak, warnings are emerging that maturing margin positions could return as additional selling pressure.
■ Shift toward deficit bonds: Japanese Prime Minister Sanae Takaichi has stepped back from her earlier position that tax cuts would be funded solely by restructuring spending. As the bill for gains in wages, capital investment and share prices comes due in the form of surging long-term interest rates and a weaker yen, her "responsible proactive fiscal policy" appears to be facing a test.
■ Pension fund management: The National Pension Service's fund management committee decisions to delay rebalancing and raise its domestic equity weighting have come under scrutiny again during the parliamentary audit of government agencies. Amid rumors that the fund's depletion date has moved forward, experts say Korea should look to Japan's Government Pension Investment Fund (GPIF), which doubled its domestic equity weighting and posted its best performance a decade later.
[News of Interest to Global Investors]
1. Kioxia, Down 63%, Weighed Down by 7.8 Trillion Won in Margin Debt
- Key summary: Kioxia Holdings, a Japanese NAND flash memory maker, faces additional downward pressure as margin loan balances surge. Bloomberg, citing Tokyo Stock Exchange data, reported that Kioxia's margin buying balance stood at about 920 billion yen (about 7.8 trillion won) as of the 15th, the largest among companies listed on the exchange. Trading value on the 16th was 766 billion yen (about 6.5 trillion won), down 84% from its peak. Tomoichiro Kubota, senior market analyst at Matsui Securities, said there is a risk of steeper losses if individual investors are forced to dump shares as margin positions approach maturity. Still, rising NAND prices have lifted the net profit forecast for this fiscal year to about 5.6 trillion yen (about 47.2 trillion won), roughly 10 times last year's level, and the 12-month forward price-to-earnings ratio stands at 3.2, below U.S. peer SanDisk at 6.2.
2. Takaichi Hints at Deficit Bonds: "I Am Not Rejecting Issuance"
- Key summary: Japanese Prime Minister Sanae Takaichi suggested on the 19th at an Upper House budget committee session that deficit bond issuance remains possible, saying she would appropriately control the volume of government bond issuance while adding that she was not rejecting bond issuance. A cut in the consumption tax rate on food, to take effect for two years from April next year, and income-linked benefit support are expected to cost about 10 trillion yen (about 84 trillion won). As of last year, Japan's national debt stood at 204.4% of gross domestic product, the highest among major advanced economies. Long-term interest rates have risen above 3% in September this year from the 1.6% range when her government took office, and the exchange rate has climbed from the 151 yen range per dollar to as high as the 163 yen range, remaining above 160 yen despite coordinated U.S.-Japan intervention. Takaichi pushed back, saying she rejects the terms "Takaichi yen weakness" and "Takaichi high interest rates," and that a strong economy and fiscal sustainability are not an either-or choice.
- Key summary: Debate has reignited over the National Pension Service fund management committee's decisions to delay rebalancing in January and raise its domestic equity weighting in May. Rumors spread in the market that 240 trillion won had evaporated from the fund amid a plunge in the KOSPI, but reserves stood at 1,684.2 trillion won at the end of July, down 181.4 trillion won, or about 9.7%, from the end of June. By contrast, the cumulative return since the start of the year was 14.84%, earning 226 trillion won compared with the end of last year. Experts pointed to the GPIF, which raised its Japanese equity weighting to 25% from 12% in 2014 and posted returns of 22.67% in 2023 and 16.47% last year. Lee Joon-seo, a professor of business administration at Dongguk University, said the need to raise the NPS's domestic equity weighting has been consistently raised in Korea as well, and that management capability will become important from now on.
[Reference News for Global Investors]
4. Won Strengthens Alone Despite Strong Dollar, Supported by Current Account Surplus
- Key summary: The won is rising more than any other major currency despite high oil prices and a strong dollar. In the Seoul foreign exchange market on the 19th, the won-dollar rate closed at 1,330.3 won as of 3:30 p.m., down 1.1 won from the previous session and the lowest in two years since Oct. 2, 2024. From early July through the 16th of this month, the dollar index (DXY), which measures the dollar against six major currencies, rose to 101.84 from 101.39, while the won-dollar rate fell about 14.4% over the same period to 1,331.4 won from the 1,550 won range. According to the Bank of Korea, the current account surplus from January to August this year was $279.2 billion, about four times the $69.7 billion in the same period last year, with surging memory chip exports seen as underpinning the foreign currency supply. Some point out, however, that if foreign investors sell stocks and repatriate funds, dollar demand would rise and push up pressure on the exchange rate.
5. Chinese Goods Assembled and Packaged as European: Germany, France Demand Local R&D and Parts
- Key summary: Germany and France agreed on the 16th to tighten "Made in Europe" standards, putting a brake on Chinese companies' strategy of routing production through Europe. The two countries will limit recognition as European-made for vehicles receiving subsidies and public procurement benefits to the 27 European Union member states, and will require research and development activity to secure intellectual property rights in addition to production within the bloc. The European Commission's Industrial Accelerator Act includes a standard requiring that more than 70% of component value, excluding batteries, be sourced in Europe. Chinese cars accounted for 9% of new vehicle sales in Europe in the first half, and AlixPartners projected their share would rise to 16% by 2030. BYD's plant in Szeged, Hungary, due to begin operating in the fourth quarter, may fail to meet European-made standards depending on the share of Chinese parts, and the company appears to be considering a new plant in France instead of a roughly $1 billion (about 1.33 trillion won) plant in Turkey that it shelved in June.
6. China's Third-Quarter GDP Grows 4.5%, Putting Annual Target Within Reach
- Key summary: China's National Bureau of Statistics announced on the 19th that third-quarter gross domestic product grew 4.5% from a year earlier, beating the 4.4% forecast compiled by Reuters and Bloomberg. GDP for the first three quarters was 107.1 trillion yuan (about 21 quadrillion won), up 4.6% and within this year's target range of 4.5% to 5%. Analysts said this eases pressure on authorities to roll out aggressive stimulus in the fourth quarter. Industrial production rose 5.5% in September and retail sales gained 1.1%, the strongest growth for each since March, but real estate development investment fell 20.6% in the first nine months as weak domestic demand persisted. Meanwhile, the trade surplus for the first nine months was $938.11 billion, raising the prospect of a record annual high exceeding last year's $1.1889 trillion, though escalating friction with the EU and other trading partners remains a challenge.
