In 2025, the 'Known but Unknown Risks' Approach [2025 Investment Outlook]

Trump's Second Term: Learning Effects from First Term but Details Remain Variable
Game-Changer AI Poses Bubble Threat Similar to Dotcom Bubble from Investment Perspective
Prolonged Domestic Political Turmoil and Industrial Competitiveness Weakening May Lead to Economic Crisis

The new year of 2025, the Year of Eulsa (乙巳年), has dawned, but the investment environment remains harsh. Even institutional investors who have specialized in investments for decades evaluate this year's domestic and international economic situation as full of 'Known, Unknown risks.' Although many variables such as Trump's second term, China's deflation, geopolitical risks, and AI bubble theories are already known, the detailed volatility and direction are difficult to predict. Investors face difficulties in making new overseas investments due to sharp exchange rate fluctuations, and it is also challenging to decide the direction of domestic investments amid political turmoil and weakening industrial competitiveness.

Overseas Investments Nervous About 'AI Bubble Theory'... Domestic Market Faces 'Double Whammy' of Political Turmoil and Industrial Competitiveness Decline

On the 2nd, Heo Jang, Chief Investment Officer (CIO) of the Administrative Mutual Aid Association, said, "We know the big picture of the risks coming this year, but we do not know the details, scope, or intensity," adding, "No one can predict whether the unilaterally rising U.S. tech stocks will peak like the IT bubble in 1999 or repeat the burst of 2000."

In terms of domestic investment, political risk has significantly impacted the economy for the first time since the 1990s. Concerns have even arisen that an economic crisis could occur due to overlapping political risks, weakening industrial competitiveness, and stock market stagnation. If political turmoil prolongs, the possibility of a downgrade in the national credit rating cannot be ruled out.

CIO Heo stated, "Due to the weakening competitiveness and momentum loss of key industries such as semiconductors and electric vehicles, the U.S. stock market and cryptocurrency market are gaining attention as alternatives to the domestic market, while the Korean stock market remains undervalued." All conditions including demographic structure, growth rate, exchange rate, interest rates, and technological competitiveness have deteriorated, and China is overtaking in key industrial sectors. Without a clear breakthrough, a long-term recession is expected to be unavoidable.

Warnings were also issued about cascading risks such as financial sector damage due to the worsening real economy. Lee Sang-min, CIO of the Construction Workers Mutual Aid Association, said, "The real economy is very difficult. Especially in real estate, transactions are almost non-existent, and mid-tier loans from savings banks are expected to take a significant hit this year." He added, "The deterioration of the real estate market could have a domino effect on other economic sectors."

M&A Market Accelerates Large Corporations' Rebalancing... Overseas Investors Expected to 'M&A Shop' Korean Companies Due to Exchange Rate Effects

In the mergers and acquisitions (M&A) market, large corporations such as SK and Lotte Group are expected to proceed with additional rebalancing and portfolio restructuring. Samsung Electronics and Hyundai Motor Company are anticipated to seek overseas investments to enhance group competitiveness based on their financial strength.

The domestic industry's fortunes are expected to diverge depending on the Trump administration's policy stance. Particularly, uncertainties in domestic automobile, electric vehicle, and secondary battery sectors are expected to increase due to the reduction of the Inflation Reduction Act (IRA) and high tariffs. On the other hand, the Trump administration's policy to expand the generic drug market is expected to positively impact the domestic pharmaceutical and bio sectors, and the growth opportunities in the domestic space and defense industries are expected to expand due to increased military spending amid weakening global alliances.

The venture capital industry forecasts advantages in discovering investee companies but increasing difficulties in fundraising and exits. Hong Won-ho, CEO of SV Investment, explained, "In the past, investments were mainly focused on early-stage startups, but now resources and investments will concentrate on larger companies capable of scaling up," adding, "In uncertain times, resources flow to places that can create a super-gap." He predicted that VC funds and government support will also focus on large startups capable of global competition.

There is also a forecast that overseas investors will begin 'M&A shopping' for domestic startups due to the rising exchange rate. CEO Hong said, "As the market becomes difficult, the exit market through M&A is growing rather than IPO-centered exits, and the current exchange rate situation is creating a favorable environment for overseas investors to engage in M&A."

Investment Sentiment Expected to Recover Centered on Semiconductor Materials, Components, Equipment, Bio, K-Beauty, and Power Infrastructure

Despite the conservative investment environment, investments in promising sectors are expected to continue. Samil PwC identified semiconductor materials, components, equipment, bio-healthcare, beauty, and power infrastructure businesses as priority promising sectors with high overseas expansion potential. The environmental and recycling sectors within ESG (Environmental, Social, Governance) were also highlighted as promising sectors.

Kim Ji-won, CEO of Aju IB Investment, said, "Domestically, the focus is not on AI model competition but on service providers who can offer these models," and added, "In the bio-pharmaceutical field, after a period of stagnation, areas such as obesity and diabetes drug development or other new drug technology exports are expected to gain momentum and recover investment sentiment."

Kim also stated, "As K-Beauty's popularity soars overseas, related companies are showing remarkable performance," and predicted, "This wave will have a driving effect, creating a favorable business environment not only for Korean cosmetics' OEM (Original Equipment Manufacturing) and ODM (Original Design Manufacturing) but also for brands and material companies."