Wash's Hawkish Remarks Spread Concern Over September Rate Hike...Battery ESS Tailwind and CXMT's Surging Earnings Reignite Semiconductor Competition

The KOSPI fell about 1.4% to pass the 6,680 level, while the KOSDAQ saw a steeper decline of 2.46%, falling to around 817. The won-dollar exchange rate remained stable around 1,374 won. On the supply-demand side, foreign investors sold in the cash market but continued buying in futures, with about 620 billion won sold on the main board and 130 billion won on KOSDAQ, while futures market buying of around 200 billion won was confirmed.

In the afternoon session, the KOSPI fell about 1.5%, with foreign investors selling around 720 billion won and institutions around 680 billion won, and only about 200 stocks advancing. KOSDAQ fell about 2%, with both foreign investors and institutions net sellers and fewer than 400 advancing stocks, reflecting an overall subdued market. Samsung Electronics fell about 1.8% and SK Hynix about 2%.

By sector, bank stocks strengthened amid rising government bond yields, and refining and chemical stocks also moved in tandem with rising oil prices. Semiconductor equipment stocks and Hanmi Semiconductor attempted an intraday turn to gains, while battery and cosmetics-related stocks continued their strong run. In contrast, KOSDAQ-listed Alteogen fell about 4%.

Panelists noted that despite three to four consecutive sessions of gap-down openings, the volatility index has actually been falling. The volatility index rose about 7% to 46 points, and the fact that volatility is declining even amid a significant catalyst like the rate issue was interpreted as a sign the market is forming a bottom. Whereas the KOSPI's weekly decline last week was -1.79%, the decline following this rate issue narrowed to -1.34%; despite the U.S. Philadelphia Semiconductor Index plunging about 3%, the fact that the domestic index was defended to this extent was viewed positively. It was also noted that major Asian markets were digesting the rate issue to a similar degree, with the Nikkei down 1.5%, Taiwan's TAIEX down 1.4%, and Hong Kong's Hang Seng down 0.8%.

This week will see the sequential release of Korea's July industrial activity trends, August trade statistics, and August CPI, while China's manufacturing and services PMIs, already released, showed solid manufacturing readings. The G20 finance ministers and central bank governors meeting is scheduled to begin tonight, Korea time.

In the U.S., the July JOLTS job openings report, August ADP private employment report, the Fed's Beige Book, the August ISM services PMI, and weekly initial jobless claims will be released in sequence, with the most important data point — the August nonfarm payrolls report and unemployment rate — due Friday, September 4. On the corporate earnings front, results are expected from Dell, AI server-related names, optical communications stock Credo, Broadcom, HPE, and Snowflake, making it a week that should offer a read on the direction of the broader AI value chain.

In addition, SEMICON Taiwan 2026, a semiconductor industry event, will be held in Taiwan, and starting September 1, John Ternus, an engineer by background, takes over as Apple's new CEO ahead of a new product announcement on September 9. Tesla has announced a Cybercab launch event for September 3.

LS Securities analyst Jung Woo-sung issued a report raising Samsung Electronics' target price from 400,000 won to 450,000 won while cutting SK Hynix's from 3.3 million won to 2.4 million won. The rationale for the Samsung Electronics upgrade was that it has secured relatively higher manufacturability in HBM4, prompting an upward revision of both HBM shipment volume and profitability estimates. The rationale for the SK Hynix downgrade was that as Samsung Electronics catches up in HBM4 and improves manufacturability, customers are diversifying their supply sources, normalizing the competitive landscape — leading the report to lower its HBM operating margin forecast from around 80% to 60%.

Panelists pointed out that the report's logic appeared to have been reverse-engineered to fit its conclusion. According to UBS projections, SK Hynix's share of the HBM market is set to decline while Samsung Electronics' share rises heading into 2026-2027, but this was rebutted as a judgment based solely on share allocation without assuming that the market itself is growing. In a shortage phase where the market keeps growing, interpreting a share shift as a closed zero-sum game and using it as grounds to lower SK Hynix's operating margin was pointed out as a logical contradiction.

In particular, it was criticized that raising Samsung Electronics' target price on the assumption of market growth while cutting SK Hynix's target price on the assumption of market stagnation reflects mutually inconsistent premises. A counterargument was also raised against the report's assertion that a 60% HBM operating margin for SK Hynix is the appropriate equilibrium ('Goldilocks') point, calling the basis arbitrary, and noting there is no reason to rule out margins settling higher or lower in negotiations with customers such as Nvidia.

Disagreement was also raised over valuation methodology. The report valued both Samsung Electronics and SK Hynix on a P/B basis (SK Hynix at 1.1-1.4x, Samsung Electronics at 1.0-1.3x), and it was noted as regrettable that only one methodology was applied when the market has yet to settle the debate over whether to value the semiconductor sector as a cyclical industry using P/B, or reflect the prolonged supply shortage using P/E. Panelists shared the common view that while they do not deny that a semiconductor winter will eventually come, applying an overly conservative yardstick during the current strong upcycle is poorly timed.

The biggest variable for the battery sector was identified as the timing of the resolution of the electric vehicle market chasm and the competitive dynamic with China. Nevertheless, thematic battery-related indices have recently trended upward and climbed the rankings, with AI-driven energy shortages cited as the background. A Hana Financial Investment report forecast that energy storage system (ESS)-related orders would grow rapidly for the remainder of 2026, analyzing that the logic behind solar and battery installations, once confined to decarbonization discourse, is now shifting toward a response to energy shortages.

Panelists cited two axes for viewing the battery sector: growth expectations driven by ESS and the market share competition with China. While expectations on the ESS side are gradually reviving, it was assessed as premature to view this as momentum capable of overwhelming the market unless a change in market share versus China is confirmed. An anecdote was shared in which a battery analyst remarked that they would issue a report if China's market share were ever taken back, presenting the change in China's market share as the key checkpoint for future investment decisions.

With electric vehicle revenue shares hovering around 20% by company, it was initially projected to take more than five years for this share to rise to a level with meaningful impact on overall corporate margins, but it was noted positively that the timeline in recent analyst reports has been shortening from five years to four, and now to around three. It was also pointed out that, given the difficulty of competing with China on price and volume, U.S. policy toward China would ultimately be the key factor — and as U.S. sanctions on China alternate between easing and tightening, causing confusion, a workaround has emerged among EV makers, with covert cooperation with China strengthening in the form of technical advisory fees.

It was also reported that following President Trump's declaration of a national emergency related to the power grid and his signing of an executive order covering Chinese-made power equipment broadly, related stocks such as Hyosung and HD Hyundai Electric rallied on the possibility that the measure could extend to batteries as well. Domestic battery makers continue to pursue overseas investment, factory expansions, and raw material mine development, and the segment concluded with the assessment that, as a core national industry that cannot be abandoned, companies must hold out to the end.

China's Changxin Memory Technologies (CXMT) reported quarterly revenue of 99.5 billion yuan, far exceeding the market estimate of 65.5 billion yuan and up 95% quarter-on-quarter. Net profit came in at 52.8 billion yuan, well above the estimate of 30 billion yuan and up more than 100% quarter-on-quarter. Gross margin reached 92.4% and operating margin 82.1%, prompting the assessment that the company is essentially profiting on nearly everything it sells. The earnings beat was attributed to a surge in DRAM prices and improved product mix from an expanded share of high-margin server DDR5, and the company also unveiled plans for mass production of next-generation LPDDR6.

Morgan Stanley projected that even as CXMT's production capacity increases, the HBM market will remain in a state of supply shortage, and CXMT's stock actually fell about 1% following the earnings release. Panelists noted that there are two opposing interpretive frames for why Changxin Memory's results draw attention: confirmation of a broad semiconductor upcycle, and the possibility of China closing the gap.

It was analyzed that as Samsung Electronics and SK Hynix concentrate on high-value-added products like HBM, relatively neglecting the low-spec segment, Changxin Memory is benefiting as a result; in terms of wafer input volume, a gap still exists, with Samsung Electronics at 650,000 wafers and SK Hynix at 550,000, compared to Changxin Memory's roughly 300,000. However, the fact that Changxin Memory has turned profitable and secured IPO funding, giving it capacity for reinvestment, was flagged as a new risk factor.

It was concluded that a real catch-up would require simultaneous localization of equipment and materials, and since news of in-house development of key equipment such as lithography machines remains at the trial-run stage with unclear sourcing and performance, it is difficult to conclude that the technology gap has meaningfully narrowed for now. Still, the possibility that large funds investing in East Asian semiconductors could judge Samsung Electronics and SK Hynix to be near a peak and shift allocation toward China was cited as a real burden.

Before the market open, SK Innovation announced it had signed a 1.5 trillion won ESS battery cell supply contract in the United States, sending its stock up as much as 7% at one point. As SK Innovation, which had lagged somewhat in the ESS segment among the three domestic battery cell makers, showed signs of catching up, LG Energy Solution and Samsung SDI also turned higher intraday. POSCO Future M and L&F also rose 5-7%.

The rally in related stocks was bolstered after it was confirmed that the executive order signed by the Trump administration declaring a national emergency to protect the power grid covers not only inverters, solar panels, transmission lines, and power equipment, but ESS as well. HD Hyundai Electric, LS, and Hyosung — Korea's three power equipment makers with U.S. production lines — were cited as stocks expected to benefit directly; Hyosung in particular saw its U.S.-driven orders roughly double from a year earlier, pushing the U.S. share of its total orders up to 70%.

It was analyzed that as the pace of power supply needed for data centers and AI expansion fails to keep up with construction plans, and even small modular reactors (SMRs) will not be operational until 2029-2030, ESS demand is being further highlighted. The expectation that this executive order could further push Chinese-made ESS equipment out of the market, allowing domestic battery makers to readily capture additional benefits from their existing technological capabilities, was cited as the backdrop for the stock rally.

In weekend remarks, Fed Governor Wash stated that confidence is needed that core inflation is moving toward the 2% target at a clear and sufficient pace, and that if not, the Fed still has work to do. He assessed that inflation is higher than expected, noting that more than half of the 199 components of the PCE index are rising at an annualized rate of 3% or more, and reiterated that the 2% inflation target is firm and fixed.

He also made clear that the review of the inflation framework does not mean easing the inflation target itself, stating that inflation does not normalize automatically and the Fed must directly achieve price stability. He laid out the principle that the primary tool of monetary policy is the short-term interest rate, and that unconventional monetary policy should be used only in a limited way during genuine crises. Following these remarks, U.S. Treasury yields rose, and the probability of a September rate hike climbed to 57% as of the weekend.

Panelists assessed that the hawkish tone of the remarks far exceeded expectations, analyzing that Wash directly overturned the prior perception that the Fed had effectively tolerated the rise in market rates while appearing to scale back its role. However, with the 10-year Treasury yield not easily coming down from around 4.7%, it is acting as a burden on the market in the near term, and how policy coordination between Treasury Secretary Bessent and the Fed unfolds over the fiscal deficit issue was also cited as a variable.

Regarding the schedule ahead, with FOMC meetings set for September 16 and October 28, and an election immediately following the October meeting, analysts noted that a rate hike decision is effectively likely to be made in September. Since it would be structurally difficult to hike twice in a row if the Fed fails to hike in September, concerns were also raised that a gap between hawkish rhetoric and actual action could instead heighten market uncertainty.

At the same time, geopolitical risks were also cited, including the U.S. bombing of Iran and signs of Iran's immediate retaliation, with forecasts that the three variables of interest rates, fiscal policy, and geopolitics will continue to shake the market with each data release and Fed official remark over the coming two weeks.

Lee Kwang-soo noted that what actually affects the stock market is not the policy rate itself but the market rates it transmits, particularly long-term rates. He offered the interpretation that if the current rise in long-term rates stems from inflation concerns, then the Fed raising the policy rate to build credibility that it will firmly contain inflation could actually cause long-term rates to fall. As evidence, he cited that U.S. 2-year and 5-year yields jumped around 10bp, while 20-year and 30-year yields rose only 1-2bp.

He argued that the real problem had been the uncertainty arising from the Fed speaking ambiguously without following through with action, and assessed that Wash's clear hawkish remarks could be a positive signal in reducing that noise. He offered the hopeful outlook that if a September rate hike resolves the uncertainty, and this coincides with a scenario in which the U.S.-Iran conflict also ends, a fairly favorable environment could unfold in the second half.

However, he added the caveat that for this optimistic interpretation to hold, clear policy action must actually follow in September, and stressed that various smaller hurdles — coordination between fiscal and monetary policy, resolution of geopolitical risk, and the like — would also need to be cleared.