Despite Rosy Prospects... Construction Stocks Struggling to Gain Momentum

KRX Construction Index Falls 11.06% in August
Individual Stocks Also See Significant Declines

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Construction stocks have been sluggish since August. Although experts had a bright outlook for the second half of the year, global economic recovery due to COVID-19 vaccines and the easing of real estate regulations have fallen short of expectations, leading to investor neglect.

As of 9:27 a.m. on the 23rd, the KOSDAQ Construction Index recorded 99.61, down 0.75% (0.75 points) from the previous day. While the KOSDAQ index is showing an upward trend, the construction sector is experiencing the second largest decline following the paper and wood sector. The KOSPI Construction Industry Index rose 0.12% to 118.39 at the same time but remains significantly lower compared to early this month when it was at the 134 level.

Looking at the entire month of August, the downward trend is even more pronounced. Between August 2 and 20, the KRX Construction Index fell 11.06%, second only to the KRX Steel Index, which had the largest decline. Individual stocks also saw significant drops. Daewoo Construction and Hyundai Construction fell 14.23% and 11.52%, respectively, during the same period.

The outlook for construction stocks in the second half of the year was optimistic. With global COVID-19 vaccination rates soaring, the global economy was expected to show a clear recovery in the second half. Expectations for easing real estate regulations also increased. After Oh Se-hoon took office as Seoul mayor in April, there was speculation that the real estate regulations promoted by the Moon Jae-in administration would be swiftly lifted, leading to expanded supply centered in Seoul.

However, the anticipated events did not materialize. The spread of the COVID-19 Delta variant raised concerns that the global economic recovery could slow down. According to the New York Times on the 22nd (local time), the average daily new cases over the past week exceeded 150,000 for the first time since January. Contrary to market expectations, Mayor Oh introduced the land transaction permit system immediately after taking office, failing to ease regulations during his four-month term.

Nevertheless, momentum has recently begun to revive. Signs of a recovery in the reconstruction market have started to appear. On the 20th, Mayor Oh demanded active reconstruction policies, including easing reconstruction safety inspection regulations, from the Ministry of Land, Infrastructure and Transport via social media (SNS). He also announced that the newly created ‘2040 Seoul Plan’ after his inauguration would reflect measures to delete or relax the existing 35-floor building height restriction.

In the securities industry, it is expected that the postponed optimism will be reflected in stock prices around October. Rajin Sung, a researcher at KTB Investment & Securities, explained, "From October, the presidential candidates of major political parties will be revealed, and promises to ease real estate regulations will be specified. Now, when market interest is low and the market is in a correction phase, is an opportunity to increase the weighting of the construction sector."

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