▲ 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 tailored news items for each reader type.
■ Earnings pressure from a stronger yen: Since the joint U.S.-Japan currency intervention at the end of July, the yen has gained as much as about 10 yen against the dollar, leaving the annual exchange-rate assumptions set by major Japanese manufacturers wide of the mark one after another. A weak yen had been a key driver lifting Japanese manufacturers’ earnings by inflating the yen value of overseas subsidiaries’ profits and improving export margins, so the shock in the opposite direction is growing.
■ CXMT margin reversal: China’s ChangXin Memory Technologies (CXMT) posted an operating margin of 82% in the second quarter, overtaking both SK hynix (000660) and Samsung Electronics (005930). Korean producers prioritized supplying high-bandwidth memory (HBM), which reduced their output of general-purpose memory and drove up prices for DDR5 general-purpose DRAM, CXMT’s main product.
■ Wealthy investors rebalance: High-net-worth individuals with at least 3 billion won in financial assets have pursued a rebalancing strategy since July, trimming domestic growth stocks amid a range-bound Korean market and shifting into long-short funds, equity-linked securities (ELS) and gold. Interest has also concentrated on dollar-denominated Brazilian bonds, which offer both tax exemptions and exposure to a weaker dollar.
[News of Interest to Global Investors]
1. Sudden Yen Strength Weighs on Japanese Corporate Earnings
– Key points: The yen is rising faster than major Japanese manufacturers had expected, increasing pressure on corporate earnings. According to the Nihon Keizai Shimbun, citing data from financial information provider QUICK, of 360 major Japanese companies that disclosed exchange-rate assumptions for the fiscal year ending in March next year, 150 built their business plans on 155 to 159 yen to the dollar and 35 on 160 to 164 yen, while the currency is now trading at about 153 to 154 yen. Toyota Motor estimates that every one-yen gain in the yen against the dollar reduces its annual consolidated operating profit by about 50 billion yen (435.3 billion won), and Kenji Abe, chief strategist at Daiwa Securities, calculated that a one-yen gain cuts total pretax profit at Japanese listed companies by about 0.3%. The Bank of Japan is due to decide whether to raise interest rates at its monetary policy meeting on the 17th and 18th, meaning currency volatility is set to continue for some time.
2. CXMT Margin Overtakes SK hynix on DRAM Windfall
– Key points: China’s ChangXin Memory Technologies (CXMT) has posted an operating margin among the highest in the world on the strength of general-purpose DRAM. The Nihon Keizai Shimbun analyzed second-quarter results at Samsung Electronics, SK hynix, U.S.-based Micron and SanDisk, Japan’s Kioxia and China’s CXMT, and found CXMT’s operating margin at 82%, above SK hynix at 76% and Samsung Electronics at 70%. Taiwanese research firm TrendForce concluded that HBM profitability has fallen below that of DDR5 since the January-March period. CXMT, which has secured Alibaba, ByteDance and Tencent as customers, posted second-quarter operating profit of about 1.9 trillion yen (16.57 trillion won), a sharp turnaround from an operating loss of 29 billion yen (253 billion won) a year earlier.
– Key points: High-net-worth individuals with at least 3 billion won in financial assets are showing strong interest in dollar-denominated Brazilian bonds, which can offer both tax-exempt interest income and gains from a weaker dollar. Park Keun-bae, an executive at Shinhan Bank’s Premier Pathfinder division, said that after market volatility increased in July, wealthy clients raised their allocations to long-short funds, structured products such as ELS, and fixed-rate insurance products. Brazilian bonds are seen as attractive because they are expected to yield more than 5% to 6%, above the roughly 3% offered by time deposits, and because interest income and capital gains are fully tax-exempt under the Korea-Brazil tax treaty. Park also pointed to U.S. monetary policy and the direction of interest rates, the won-dollar exchange rate, the sustainability of AI-driven global capital spending, and the U.S. midterm elections in November as key events ahead.
4. Nuveen Says High Rates Will Persist, Flags Retail and Rental Housing [Signal]
– Key points: Nuveen, the asset management arm of the Teachers Insurance and Annuity Association (TIAA), expects high interest rates to persist globally and stressed the importance of real assets such as property. Abigail Dean, global head of strategic insights for real estate at Nuveen, said that the longer inflation and interest rates stay elevated, the more clearly diversification benefits emerge from real assets that have low correlations with other asset classes. Income-producing property transaction volumes in the United States, Europe and Asia-Pacific rose 24% from a year earlier over the past 12 months, and property allocations within institutional portfolios fell from about 13% in 2022 to 7% in June this year before beginning to rebound, according to the firm. Nuveen also named the energy transition, power grid expansion and secondary investments as core areas in infrastructure, forecasting that electrification and the spread of AI will lift power demand by more than 40% over the decade from 2023.
