Stocks Related to Government Regulations Lose Momentum, Rebound Prospects Dim

Frustrated Building Materials Sector
Real Estate Regulations Cause Housing Market Slump
LG Hausys Hits 52-Week Low
Hyundai Livart Also Drops 45%

Insurance Stocks Plummet
Actual Loss & Auto Insurance Premiums Rise Only 3.8% & 9.8%
Samsung Fire Falls 9% in One Month

[Asia Economy Reporters Koh Hyung-kwang, Park Ji-hwan] Stocks related to the sector are struggling due to the government's stringent regulations. Construction material stocks are on a downward trend as their earnings shrink amid a housing market slump caused by government real estate regulations, while insurance stocks, which rebounded in the second half of last year, are losing momentum again due to government pressure to suppress premium hikes.

According to the Korea Exchange on the 22nd, LG Hausys' stock closed at 50,500 KRW, down 0.6% from the previous day, marking a 52-week low. The stock has declined for four consecutive trading days, falling nearly 30% compared to 71,000 KRW a year ago. During this period, Hyundai Livart's stock dropped about 45%, and KCC's by about 30%.

This trend among construction material stocks is largely due to expectations that earnings improvement will be difficult as the real estate market cools and housing transactions decrease amid government regulations. KCC and Hyundai Livart's cumulative operating profits until the third quarter of last year were 128.2 billion KRW and 22.7 billion KRW, respectively, representing a sharp decline of 34.2% and 43.7% compared to the previous year. LG Hausys' operating profit increased by 22% until the third quarter of last year compared to the previous year, but it was evaluated as falling short of market expectations considering the base effect of the previous year's performance.

Although companies are undertaking cost reductions and asset efficiency improvements, experts analyze that there are limits to earnings improvement unless the construction industry recovers.

Kim Ki-ryong, a researcher at Yuanta Securities, explained, "Due to loan regulations, new housing supply has been delayed, occupancy volumes have decreased compared to previous years, and existing housing sales transactions have frozen, shrinking the construction material market. The profit slowdown in the B2B-focused construction material sector is more significant than expected."

Many also believe that earnings improvement in the short term is unlikely. Jo Yoon-ho, a researcher at DB Financial Investment, forecasted, "There are no factors for earnings improvement in the construction material sector, and construction of not only residential but also non-residential buildings is expected to decrease, so the poor performance of the construction material sector may continue until next year."

The insurance sector, which succeeded in rebounding in the second half of last year, has recently re-entered a downward elevator. In particular, in the non-life insurance industry, the premium increases for indemnity insurance and automobile insurance, recently decided, were set lower than expected due to government pressure to suppress hikes, fueling stock price declines. The KRX Insurance Index, which aggregates 12 insurance stocks, rose 15.5% from 1150.63 on August 16 last year to 1328.96 on December 13 of the same year. However, the closing price on the 21st of this month was 1184.54, down 11% in just one month.

Samsung Fire & Marine Insurance, the leading non-life insurer, closed at 228,000 KRW on the 21st. Considering it was above 250,000 KRW on December 23 last year, it dropped nearly 9% in a month. During the same period, Hyundai Marine & Fire Insurance (-13.98%), DB Insurance (-14.65%), and Meritz Fire & Marine Insurance (-11.17%) also showed double-digit declines. Particularly, Hanwha General Insurance recently fell to the 2,500 KRW range, marking its lowest price in 10 years.

Non-life insurers initially planned to raise automobile insurance premiums by 5% and indemnity insurance premiums by 15%, but due to the government's recommendation to "minimize the increase," they kept the hike rates as low as possible. Accordingly, automobile insurance premiums were raised by 3.8%, and indemnity insurance by 9.8%. Recently sold new indemnity insurance products are even set to decrease by 9-10%. Although the hikes were intended to offset growing deficits caused by a sharp rise in loss ratios, the financial authorities' intervention has hindered these efforts.

The securities industry expects insurance stocks to find it difficult to rebound significantly for a considerable period. The business outlook remains poor due to uncertain loss ratio improvements, declining investment returns amid prolonged low interest rates, and government regulations.

Jung Joon-seop, a researcher at NH Investment & Securities, explained, "The rate hike events for indemnity and automobile insurance are over, and now earnings improvement is needed, but poor performance is expected to continue in the first half of the year. The long-term risk loss ratio is unlikely to improve this year, and investment returns will be lower than last year."

This content was produced with the assistance of AI translation services.