Kang Bangcheon Special Letter "We Must Get Used to Deflation"

Asset Plus Asset Management sent a special letter to customers on the 10th under the name of its founder, former Chairman Kang Bang-cheon. The letter contained a recent market diagnosis and investment strategy. It conveyed messages not only to direct sales fund customers who are greatly concerned due to recent market volatility but also to general investors.

Former Chairman Kang has sent four special letters over the past 17 years, starting with the 2008 global financial crisis, the 2011 European debt crisis, and the COVID-19 outbreaks in 2020 and 2022. He explained that the purpose was to reassure customers and persuade them to hold onto their funds whenever the market experienced extreme fear.

He began by discussing the attitude investors should have toward the market. Former Chairman Kang said, "Above all, the most important thing is to listen carefully to what the market is saying," adding, "People often say that when the market rises a lot, it falls, and when it falls a lot, it rises, but people always act otherwise."

He continued, "Rather, investors behave in the exact opposite way to the market’s signals," advising, "Investors should be calm when excited and approach the market when fearful in order not to miss out."

Regarding the market diagnosis, he said, "The current key issue dominating the market is obviously the tariff war, but it feels like watching a big poker game full of bluffs," explaining, "Soon, that game will end and lose momentum, and attention will shift to a new issue."

He identified interest rate cuts as the next key issue. He viewed the forthcoming interest rate cuts as very structural and long-lasting.

Former Chairman Kang predicted, "The U.S. tariff policy will trigger involuntary overinvestment by numerous companies in the U.S. or countries with relatively low tariffs," adding, "This will increase the total supply curve in each industry, induce comprehensive price reductions, and create greater room for interest rate cuts."

He emphasized, "The tariff war will act as inflationary pressure in the short term," and "The involuntary overinvestment by companies to overcome high tariffs may cause excess supply in various industries, and the resulting downward pressure on prices will clearly create structural conditions for interest rate cuts."

Former Chairman Kang also highlighted the infinite intellectual services and product supply that AI innovation will bring, stating, "Generative AI will provide infinite intellectual services, and autonomous driving equipped with physical AI and robots like Optimus will offer infinite labor and mass-produce inexpensive products."

He explained, "In the upcoming AI era, we will witness a phenomenon where the supply of products and services increases infinitely while prices do not rise," adding, "This will be an important basis for inducing structural interest rate cuts."

Chairman Kang also said, "The disruptive innovation brought by AI will even overturn the fundamental economic order we have taken for granted," noting, "The key principle of modern economics established over the past 100 years is the efficient allocation of scarce resources."

He warned, "The future world will face a situation where resources once considered scarce are supplied infinitely," and "Investors accustomed to the inflationary growth model will face the significant challenge of finding value in a deflationary growth model." He added, "The deflationary growth model will be an unfamiliar and frightening investment environment for all economic agents including governments, companies, and individuals," but "for some, it will present new investment opportunities."

As a clue to finding value in the deflationary growth model, former Chairman Kang said, "We must ask and answer what resources will maintain their scarcity value in a future world overflowing with goods and services," expecting, "Probably luxury brands that are hard to defy the value of time, rare natural resources, and investment assets like Bitcoin with limited issuance will attract attention."

He urged, "The deflationary growth model will become a key theme dominating the investment world for a very long time," and "We must get used to a structure where prices fall and deflation becomes common."

In response to the changed investment environment, Asset Plus promised to discover value with an explorer’s spirit and introduce funds and ETFs that will embody it.

Former Chairman Kang concluded the letter by saying, "I believe the end of the decline is not far away," and "If we overcome the crisis with patience without being shaken by fear, we will become the protagonists of the celebration."