Expectations for Supply Expansion... Construction Stocks 'Ssing Ssing' on the Rise

Policy Shift from Demand Management to Supply Expansion
KOSPI Construction Industry Index Up 35% Over 3 Months

[Asia Economy Reporter Eunmo Koo] As the government concretizes its move to shift real estate policy from demand management to supply expansion along with the replacement of the Minister of Land, Infrastructure and Transport, construction stocks are gaining momentum.

The stock prices of construction sector stocks have risen sharply over the past three months. According to the Korea Exchange on the 7th, since October last year, the KOSPI Construction Index has risen 35.1% as of the previous day, surpassing the KOSPI's increase of 27.5%. During this period, major construction stocks also recorded gains exceeding the KOSPI. Daewoo E&C rose as much as 6,340 KRW intraday yesterday, setting a 52-week high, and has increased 114.4% since last October. During the same period, GS Engineering & Construction (64.2%), Samsung Engineering (32.2%), Hyundai E&C (30.9%), and HDC Hyundai Development Company (30.1%) also saw significant gains.

Given the recent turmoil in the real estate market and criticism over price increases, and the ministerial replacement occurring during the process of preparing countermeasures, it is interpreted that expectations of concrete changes in the government's policy stance have influenced investor sentiment toward construction stocks. Since market confusion was caused by short-term supply-demand imbalances, the government is expected to seek measures to quell this, with policies to expand short-term supply likely becoming the top priority. On the 5th, Minister Byeon Chang-heum of the Ministry of Land, Infrastructure and Transport held a policy meeting involving key public and private institutions related to housing supply, emphasizing the rapid promotion of housing supply through public-private cooperation.

With most profits of domestic construction companies coming from housing projects, the government's real estate regulations have been the biggest factor suppressing construction stock prices. However, since the government officially announced supply expansion measures in August last year, the intensity and speed of supply expansion efforts have been strengthened along with the ministerial replacement. This is clearly a positive factor for construction stock prices. Sung Jeong-hwan, a researcher at Hyundai Motor Securities, explained, "One of the reasons construction stocks had been discounted in valuation was the decline in pre-sale volumes and significant concerns about future declines due to government policies and market changes."

Accordingly, it is more appropriate to understand the recent strength in construction stocks not merely as part of sector rotation in a rising market but as a normalization of valuation based on improved investor sentiment due to changes in the previously suppressive policy stance. Song Yu-rim, a researcher at Hanwha Investment & Securities, said, "Given the sharp rise in construction stock prices over a short period, concerns about valuation may arise," but added, "Considering the improvement in investor sentiment, recent expansion in orders leading to better construction sector indicators, earnings growth based on pre-sale volumes, and ample financial capacity, it is reasonable to weigh normalization over valuation burden."

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