LG Chem Lowest Price Plunge and EnSol Launch... "Caution on 2nd Battery ETF Rebalancing Exposure"

[Asia Economy Reporter Lee Seon-ae] 656,000 KRW. This is the lowest stock price LG Chem recorded within a year on the 20th. Market capitalization evaporated by 3 trillion KRW in a single day. The entire 'secondary battery value chain,' including the leading stock LG Chem, the three battery giants, and materials, was shaken. The main factor is the change in the global secondary battery environment. However, the excessive decline in LG Chem's stock price is ultimately evaluated to be influenced by weakened investor sentiment due to the battery division (LG Energy Solution), which has great growth potential, falling off. With the emergence of LG Energy Solution, whose market capitalization based on the IPO price is expected to reach 70 trillion KRW, the supply and demand of secondary battery-related stocks are expected to fluctuate, so premature buying should be approached with caution. Secondary battery exchange-traded funds (ETFs) are also expected to be exposed to rebalancing situations, requiring attention.

According to the Korea Exchange on the 21st, the three battery giants LG Chem, SK Innovation, and Samsung SDI started the session at 656,000 KRW, 219,500 KRW, and 653,000 KRW, respectively. Compared to the previous day's closing price, there is little difference. On the 20th, LG Chem closed at 656,000 KRW, down 5.88%, Samsung SDI fell 3.82% to 654,000 KRW, and SK Innovation dropped 5.22% to 218,000 KRW.

Besides the battery trio, the materials value chain is also undergoing adjustments. Companies such as L&F, Cheonbo, EcoPro BM, SKC, POSCO Chemical, and Iljin Materials are all trending downward.

This caution stems from concerns that the prolonged shortage of automotive semiconductors is causing the battery order volume from automakers producing electric vehicles to fall short of market expectations.

In particular, in the domestic market, supply and demand instability is anticipated due to the listing of LG Energy Solution. LG Energy Solution, established through the physical division of LG Chem's battery business division, will conduct an initial public offering (IPO) in January next year. According to the securities registration statement, applying an IPO price range of 257,000 KRW to 300,000 KRW, the market capitalization is expected to reach between 60.1 trillion KRW and 70.2 trillion KRW. This corresponds to the 3rd or 4th largest market capitalization ranking currently.

Accordingly, a rebalancing shock to secondary battery ETFs is inevitable. LG Chem is currently included in domestic secondary battery ETFs. Depending on the ETF methodology, the approach will be either to exclude LG Chem and include LG Energy Solution or to reduce LG Chem's weighting and include LG Energy Solution. If the strategy changes to exclude LG Chem and include LG Energy Solution, simultaneous selling pressure on LG Chem and buying pressure on LG Energy Solution may occur during the rebalancing process. Since ETF adjustments vary, it is difficult to specify the rebalancing schedule for secondary battery ETFs after LG Energy Solution's listing.

There is also a possibility of holding both LG Chem and LG Energy Solution simultaneously. LG Chem operates the materials business (such as cathode materials and separators), while LG Energy Solution produces battery cells, so both companies may be included within the secondary battery category. If both are included, the rebalancing shock could be relatively limited. Since LG Chem's weighting would be partially reduced and LG Energy Solution included, selling pressure on LG Chem is expected to be relatively restrained. However, in this case, the weighting of other constituent stocks will inevitably be adjusted to some extent. Secondary battery ETFs have specific inclusion limits for certain stocks.

Jeon Gyun, a researcher at Samsung Securities, explained, "Ultimately, whether rebalancing occurs within secondary battery ETFs due to LG Energy Solution's listing depends on the composition methodology of each ETF, and the timing of inclusion is more likely to be sequential rather than simultaneous. The scale of rebalancing will vary depending on the stock selection method and whether both stocks are held simultaneously."

Jung Won-seok, a researcher at Hi Investment & Securities, said, "Ahead of the listing of LG Energy Solution, which will have a market capitalization of up to 70 trillion KRW, institutions and funds will inevitably adjust their weightings, so related stocks may fluctuate due to supply and demand instability until February next year. Therefore, buying should be approached cautiously."

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