"The Real Game Begins in the United States"

Hwang Young-jin, Head of Multi-Asset Research at Mirae Asset Management
Focus on the Direction of US Growth Stocks... Inflation Will Ease if Wage Growth Slows

[Asia Economy Reporter So-yeon Park] "The real game starts in the United States."

Hwang Young-jin, Head of Multi-Asset Research at Mirae Asset Global Investments, recently stated in an interview with Asia Economy, "When the dollar was strong, a lot of capital flowed out of emerging markets, but now that the dollar's strength has somewhat eased, warmth is returning across emerging markets," adding, "Korea is also benefiting."

Hwang said, "So far, the situation has only progressed to that point, and now we need to look at the second half of the year," and added, "For bonds and cash to move, it should be toward Europe or U.S. growth stocks rather than emerging markets; then the real game will begin." He explained, "Investors still lack confidence, but looking at the recently released U.S. employment data, the unemployment rate is at an all-time low with strong employment, yet wage growth is declining." He continued, "Because of these conflicting results, some experts view that one of the two might be somewhat inaccurate," and added, "If wage growth slows down rather than the unemployment rate rising, it is seen as a scenario where overall inflation decreases."

Hwang forecasted, "If wages are controlled, it will lead to a phase where prices are controlled," and "then cautious capital will move into stocks, especially U.S. growth stocks." He particularly noted, "U.S. growth stocks like Apple have a larger proportion of sales outside the U.S. than within," explaining, "If the dollar weakens, sales generated outside the U.S. will relatively increase when converted into dollars, leading to earnings growth."

He said, "The interest rate hike cycle is almost over, and the valuation of growth stocks has fallen to pre-COVID-19 pandemic levels, so we are watching for opportunities." He emphasized the need to refocus on growing industries such as artificial intelligence, robotics, electric vehicles, and autonomous driving. He added, "The U.S. is currently experiencing labor shortages due to reshoring (return of manufacturing to the home country), and interest in robots and factory automation is increasing."

He is also seeking opportunities in the developed market REITs sector, which saw a sharp value discount due to last year's interest rate hikes. Hwang said, "Real estate prices fell significantly last year, and office rents dropped considerably as the economy worsened," noting, "Developed market REIT prices have fallen more than stocks." He predicted, "Once interest rates stabilize, there will be good opportunities in REITs comparable to growth stocks," advising to broaden interest to growth-type REITs not limited to housing or shopping malls. He said, "The U.S. began full-scale 5G investments last year, and investment opportunities can be found in REITs that include communication towers and data centers."

He also mentioned points to be cautious about when setting investment strategies this year. Hwang said, "If China reopens its economy, the economy will improve, but if the recovery is too rapid and manufacturing-centered, raw material prices could rise," adding, "If oil prices rise again in the second half, U.S. interest rate policies may not go as we expect." He advised, "Those who invested in bonds have been expecting rate cuts in the second half and acted accordingly, but that may not happen, and the expectation of a weaker dollar may also not follow that path, so this needs to be taken into consideration."