Individuals Holding 'Cyclical Stocks' vs Foreigners and Institutions Holding 'Large IT Stocks'

Preference for Individual 'Steel Transport' Stocks

Foreigners and Institutions Take Different Paths
Samsung Electronics, SK Hynix 'Pick'

[Asia Economy Reporter Minji Lee] After a brief pause, the KOSPI has approached new highs this month, with clear distinctions emerging in the preferred stocks of individual, foreign, and institutional investors.

According to the Korea Exchange on the 4th, excluding exchange-traded funds (ETFs), the stock most purchased by individuals this month was steelmaker POSCO, with net buying worth 164 billion KRW. This was followed by HMM (131.6 billion KRW), Doosan Heavy Industries & Construction (111.1 billion KRW), Hyundai Mobis (60.8 billion KRW), Samsung Biologics (53 billion KRW), Hyundai Steel (48 billion KRW), and Daewoo Engineering & Construction (42.7 billion KRW).

Looking at the stocks bought by individuals, except for the pharmaceutical and biotech stock Samsung Biologics, most were cyclical sectors such as steel, transportation, and construction, which have led the overall domestic stock market’s earnings growth. These sectors have shown strength since the beginning of the year due to surging raw material prices and increased cargo volumes.

POSCO, which had the largest net buying volume, is believed to reflect expectations for further earnings improvement. As steelmakers have been raising selling prices one after another, it is anticipated that they will deliver record earnings again in the second quarter. In the first quarter, POSCO recorded quarterly profits of 1.5 trillion KRW, marking the highest earnings in 10 years. Its stock price also surpassed the 400,000 KRW mark for the first time in about a decade, but due to oversupply issues mainly in the Chinese market, it has currently fallen about 16% from its peak (413,500 KRW on May 14).

The construction sector is interpreted as reflecting expectations for eased real estate regulations and improvements in overseas order markets. Daewoo Engineering & Construction and Hyundai Engineering & Construction have surged about 20% and 11%, respectively, since last month. In particular, Daewoo Engineering & Construction’s stock was boosted by forecasts that a sale could take place in the second half of the year based on solid earnings. Daewoo Engineering & Construction holds a dominant supply volume of 35,000 housing units in its most profitable residential sector, and its operating profit this year is estimated to grow by 80% year-on-year to around 800 billion KRW.

Examining the net buying stocks of foreign and institutional investors, large IT stocks dominated. Foreigners and institutions most heavily purchased Samsung Electronics and SK Hynix, with net buying worth 999.2 billion KRW and 171.3 billion KRW, respectively. This was followed by Samsung Electro-Mechanics (115 billion KRW), Kakao (90.7 billion KRW), S-Oil (78.2 billion KRW), DB HiTek (39.6 billion KRW), SK IE Technology (39.5 billion KRW), SK Innovation (38.5 billion KRW), and LG Innotek (28.8 billion KRW).

The buying momentum for large IT stocks is believed to have increased due to expectations of earnings improvement in the second half and their undervaluation appeal. Kwon Sung-ryul, a researcher at DB Financial Investment, said, "The price-to-earnings ratio (PER) of large IT companies is below 10, making their stock prices very cheap relative to fundamentals," adding, "In the second half, record operating profits can be generated reflecting expanded IT product replacement demand and new model launches by global smartphone companies."

Since the beginning of this month, individuals, foreigners, and institutions have all focused on stocks supported by earnings, but the timing of improvement differed. The securities industry expects that, given the repeated concerns and easing of economic momentum and inflation, cyclical stocks will stand out in the short term, while growth stocks centered on large IT companies will show a strong upward trend in the medium to long term. Han Ji-young, a researcher at Kiwoom Securities, said, "As global economic recovery expectations rise, styles centered on cyclical sectors suppressed since COVID-19 are showing strength," adding, "With earnings outlooks being sharply revised upward, the current trend is expected to continue into the early second half." She continued, "However, as the year-end approaches, the market will shift its focus from recovery-related stocks with rotational characteristics to structural growth stocks such as semiconductors and batteries, supported by policy momentum."

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