South Korea’s large-cap stocks have posted hefty gains in recent trade, driving the liquidity-driven markets higher after robust second-quarter results raised hopes of an economic recovery.
Large-cap names such as LG Household & Healthcare Co. and Hyundai Motor Co. have attracted individual investors, who used to chase small caps on the junior KOSDAQ market hoping for a jackpot.
LG Household & Healthcare leapt 9% to close at 1,573,000 won ($1,327) on August 11, outperforming the 1.34% rise in the KOSPI. The benchmark index ended at 2,418.67 in its strongest finish since June 15, 2018.
Despite the absence of upbeat news, LG Household saw foreign investors buying a net 44.1 billion won of its shares. It is rare for the cosmetics and household goods maker to see its share price rise almost 10% in a single day.
Power utility KEPCO Corp. jumped 8% on the day with no positive lead to push the stock higher. The KOSPI’s large-cap index has climbed 7.74% since the start of this month, outpacing the 7.53% rise in the broader KOSPI index and the 5.51% gain in the KOSDAQ index.
The recent rally in large-cap names reflects rotational buying from growth stocks to underperforming ones, suggesting markets have more room to rise, analysts say.
“Stock markets which had gained led by growth stocks are being balanced out led by economically-sensitive stocks,” said HI Investment & Securities’ research head Taebong Koh. “Given increasing expectations of an economic recovery, economically-sensitive stocks’ performance will be bullish for the time being.”
A series of economic-boosting measures unveiled by developed countries will add fresh momentum to stock markets, coupled with recent progress in the development of a coronavirus vaccine.
“While it is true that the current share prices are high enough to cause concern over valuations, the stock markets won’t undergo a correction anytime soon,” said Korea Investment Value Asset Management’s CEO Chae-won Lee. “The markets will continue to rise, led by underperforming stocks playing catch-up with outperforming ones.”
Shares in Hyundai Motor shot up 15.65% on August 10 on prospects of a recovery in the global auto market. The automaker is also expected to benefit from the South Korean government’s so-called Korean New Deal plan, with carbon neutral mobility one of two main pillars of the plan’s investment initiatives. Its affiliates Kia Motors Corp and Hyundai Mobis Co. were up 9.70% and 6.5%, respectively, on Monday.
On August 11, Hyundai Motor added 5.3% to close at 179,000 won in its seventh consecutive day of gains.
Last week, electric-vehicle battery makers powered the Seoul bourse higher. SK Innovation Co. Ltd. surged by 21% on August 5, logging its largest daily gain this year. The upbeat outlook for its electric-vehicle battery business outweighed the operating loss of 439.7 billion won it reported for the second quarter hit by the poor oil refinery business.
FOREIGN SELLING RECEDES
Subdued foreign selling provided support to the stock market. Foreign investors bought a net 1 trillion won worth of shares on the Seoul stock markets in July. In March alone, they offloaded a net 12.6 trillion won from Korean stock markets.
Since the start of August, foreign investors have sold a net 266.1 billion won, but on August 11 they turned net buyers for 150.4 billion won worth of shares.
Reflecting the optimism, the KOSPI 200 futures index for September surpassed the spot index more than half of the past seven trading days. A rise in the futures index suggests more investors are betting on a rise in stock markets.
“During the first few months of the coronavirus outbreak, technology stocks such as non-contact companies outperformed. But now, steel, refinery and chemicals, or sectors sensitive to an economic recovery, are rising higher. They will play catch-up for the time being,” said IBK Investment & Securities research head Yong-taek Jung.
He added that the stock markets would see another boost from any positive news on a coronavirus vaccine.
Individual investors have scooped up domestic shares worth a net 46 trillion won so far this year, after selling a net 5 trillion won for all of 2019. The balance of their stock trading deposits has almost doubled to 49 trillion won from 27 trillion won at the end of last year.
A private banker in a brokerage company’s branch in the affluent Gangnam district said there were no signs of the wealthy withdrawing money from stock trading accounts.
“Concerns about a stock market correction have increased, but there are no factors to lead to a correction,” he said.
By Yunsang Ko and Byeong-hun Yang
<Edited by Yeonhee Kim>