[Click e Stocks] Back to 2020 'Construction Stocks' Amid Omicron

[Asia Economy Reporter Hwang Junho] Omicron, designated as the fifth variant of concern, has struck construction company stocks. The key to the recovery of construction industry stocks lies in overseas projects, but due to concerns about the negative impact of Omicron's spread, stock prices have fallen sharply. Korea Investment & Securities analyzed on the 1st that this impact will bring about a time to increase weighting.

According to the Korea Exchange on the 1st, the KOSPI Construction Industry Index fell 5.7% over the past two trading days. This is about 2.4 percentage points worse compared to the KOSPI. Considering that Doosan Heavy Industries has a high weighting in the machinery sector (-8.8% WTD) total market capitalization, it is analyzed that the construction industry recorded the worst performance among the 17 sectors. Accordingly, the construction industry index gave back all the gains from the first half of the year and returned to the closing price level of the last trading day of last year.

Korea Investment & Securities analyzed that the market is concerned about ▲increased estimated costs at construction companies' overseas sites due to work stoppages and delays in construction schedules, or ▲major clients withdrawing or postponing existing facility investment plans due to economic activity stoppages, reduced crude oil demand, and falling international oil prices.

The spread of the variant virus is an issue that weakens the link between construction companies' scale and profitability recovery. The core of the construction industry's recovery can be seen as smooth progress of overseas projects and an increase in new orders. If the projects proceed without disruption, scale and profitability increase, and through new orders, a foundation for future operations is established. However, if this link weakens, it is highly likely that the stock price trend in 2022 will continue as it did this year.

However, from a contrarian perspective, there is an analysis that buying on further declines during volatile periods is worth considering. Kang Kyung-tae, a researcher at Korea Investment & Securities, said, "The spread of the variant virus is clearly a negative factor for construction companies for the two reasons mentioned above, but the uncertainty that has not yet been measured only increases stock price volatility rather than damaging fundamentals," adding, "The fourth quarter is the peak season for construction companies, and large-scale order sites such as the Zafra Gas Field project ordered by Hyundai Construction and Samsung Engineering are expected to emerge one after another."

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