High rates are here to stay, but AI remains the core investment bet

Experts at this year's Herald Money Festa said AI remains the cornerstone of asset allocation even as the prospect of a prolonged high-rate environment looms, while also urging investors to diversify their portfolios to weather volatility over the long term. Some 12,000 people attended the two-day event at Dongdaemun Design Plaza (DDP) in Seoul to hear expert lectures and take part in various booth activities.

Now in its third year, Herald Money Festa 2026 ran Friday through Saturday at DDP under the theme "Money Rebalancing: Recalibrating the Weight of Assets." The theme spoke directly to the turbulent asset market conditions seen this year. Experts delivered a series of lectures on how to structure investment portfolios amid recent share price corrections and a global wave of interest rate hikes.

Every speaker shared the view that high interest rates are here for the long haul. The US Federal Reserve raised its policy rate target range by 25 basis points last month — its first hike in three years and two months — while the Bank of Japan also lifted rates by 25 basis points to their highest level in 31 years. The Bank of Korea raised its benchmark interest rate in consecutive moves in July and August.

Oh Geon-young, head of the Premier Pathfinder division at Shinhan Bank, said the world is entering a new rate-hike cycle. "I think the US will likely raise rates in December, and while November is being floated as a possibility for Korea, I think next year is more likely," he said.

Choi Chang-gyu, head of the ETF consulting division at Mirae Asset Global Investments, said the US benchmark interest rate could be raised once more in December, but noted that the market has already built up a tolerance for high rates.

Cheon Gi-hun, ETF consulting team leader at Shinhan Asset Management, advised that macro variables such as interest rates and inflation now carry far greater influence than the industry cycles that once dominated, making volatility management essential.

The Bank of Korea officially entered a rate-hike cycle in July when it raised the benchmark interest rate for the first time in three and a half years, then hiked again in August to bring the rate to 3 percent. The Monetary Policy Board's policy direction meeting scheduled for Oct. 22 is widely expected to result in a hold, though markets are leaving open the possibility of one additional hike before year-end.

Some forecasts go further, suggesting the rate-hike trajectory could persist for an extended period. Bank of Korea Governor Shin Hyun-song, speaking at a press briefing after consecutive rate increases, stressed the need to preemptively address demand-side inflationary pressures driven by the semiconductor sector. If semiconductor-led economic growth is sustained, Korea's potential growth rate could rise and demand-side inflation could remain elevated for an extended period — a scenario that would push the neutral interest rate higher and give the Bank of Korea greater room to maintain a restrictive monetary policy stance over the long term. Park Jong-woo, a deputy governor at the Bank of Korea, said at a press briefing on the monetary and credit policy report last month that the current benchmark interest rate appears to be around the upper end of the neutral rate range, while adding that re-estimating the neutral rate is ongoing, making it difficult to assess against the existing range.

High interest rates tend to amplify investment uncertainty. As returns on safe assets rise, the incentive to take on risk diminishes and the appeal of riskier assets such as equities fades. Oh said that the moment markets become convinced the rate-hike trend will continue for quite some time, they will grow tense, adding that investing in a rising-rate environment carries more uncertainty than investing when rates are falling.

Even so, experts continued to back semiconductor-centered investment. Oh said that if the AI revolution collapses, the debt problems facing countries around the world will go unresolved, predicting that state-level support for AI will continue. He added that taking a long view, portfolios should be weighted toward AI.

Choi also said hyperscaler capital expenditure is forecast to reach $1.2 trillion next year, so there should be no major strain on the market, and urged investors to look beyond semiconductors to sectors where AI is embedded. He added that while interest rates are a headwind, they will not derail the AI industry, and said he expects the investment cycle to remain intact for some time.

However, experts also cautioned against betting unconditionally on AI and semiconductors alone, recommending that investors diversify their portfolios across individual stocks and bonds.

Lee Jae-man, head of global investment analysis at Hana Securities, said that in a 5 percent rate environment, stock selection matters as much as sector selection. Hana Securities forecast that the Kospi's net profit growth rate will slow from 271.5 percent this year to 30.6 percent next year. Lee said that in the early stages of slowing profit growth, whether operating profit margins improve will be the key differentiator for share prices, and proposed operating profit margin improvement — adjusted for won strength — and free cash flow (FCF) growth as the main screening criteria.

Yuk Dong-hwi, head of ETF product marketing at KB Asset Management, said this is a time to spread investments across bottleneck industries running from HBM shortages to data center power and cybersecurity, and to wait, adding that right now the key is not when or what to buy, but how long investors can hold on and endure.

There were also calls to defend against volatility by increasing bond allocations and adopting a regular savings-style investment approach. Choi noted that yields on 30-year US government bonds have surged to around 5.7 percent, a 22-year high, calling it an exceptional market environment that has broken the traditional 60 percent equities, 40 percent bonds formula. He added that gradually increasing the bond weighting in a portfolio from year-end onward is a strategy well worth considering. He also forecast that, given the fatigue felt by investors who entered at this year's highs, a savings-style accumulation approach using fractional share purchases will become the mainstream going forward.

Experts also stressed the importance of investing with a long-term perspective. Kim Gyeong-pil, chief executive of Money Training Lab, warned that investors holding "winning money" — funds they will not need for the next five years — stand a chance of success, but "losing money," funds earmarked for near-term expenses such as jeonse deposits or tuition, will not survive a downturn.