LG Energy Solution IPO D-1, Large Caps Retreat

Emergence of a 100 Trillion Won Corporate Giant
Money Moves from Existing Large Caps
Foreigners Sell Net for 5 Consecutive Trading Days on KOSPI

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] As the historic IPO of LG Energy Solution on the KOSPI market approaches just one day away, supply and demand issues are putting pressure on large-cap stocks. This is due to a combination of foreign investors' selling amid concerns over U.S. monetary tightening and the Ukraine crisis, as well as a 'money move' where funds are withdrawn from existing stocks to invest in LG Energy Solution.

According to the Korea Exchange on the 26th, foreign investors showed a selling bias from the start of trading, causing the KOSPI, which opened higher, to turn downward during the session. Foreign investors, who had continued a net buying rally since the beginning of the year, have been net sellers for five consecutive trading days since the 20th. This is amid expectations of a 'hawkish stance' as the U.S. Federal Reserve (Fed) began early rate hikes from March this year and increased the number of hikes beyond previous forecasts, spreading tightening concerns among foreign investors. Additionally, the possibility of armed conflict between Ukraine and Russia and the rapid domestic spread of the Omicron variant of COVID-19 have severely dampened investor sentiment, fueling capital outflows from emerging markets.

Furthermore, with LG Energy Solution's listing scheduled for the 27th, foreign investors are also seen reshuffling their portfolios. On the previous day, when the KOSPI recorded its largest drop this year, foreign investors sold 56.9 billion KRW worth of Samsung SDI shares, making it the second most sold stock after Samsung Electronics (110.6 billion KRW). On the same day, Samsung SDI plunged 5.87%, marking the largest decline among the top 10 KOSPI stocks by market capitalization. LG Chem, the parent company of LG Energy Solution, also fell 4.17%, significantly underperforming the KOSPI return (-2.56%). Lee Kyung-min, a researcher at Daishin Securities, stated, "Supply and demand issues ahead of LG Energy Solution's listing have significantly contributed to the recent decline in the KOSPI."

Supply and demand issues are expected to continue even after LG Energy Solution's listing. With a corporate value estimated to exceed 100 trillion KRW, LG Energy Solution is expected to be included in the KOSPI 200, FTSE, and MSCI indices after listing, which will likely attract inflows from both active funds tracking the KOSPI and passive funds such as those linked to the KOSPI 200.

NH Investment & Securities analyzed the correlation coefficient between the market capitalization of newly listed stocks last year and the KOSPI returns on their listing day, finding a coefficient of -0.34. The correlation coefficient with Samsung Electronics' returns was confirmed at -0.43. Among recently listed stocks, Krafton, which had the largest market capitalization, saw the KOSPI fall 0.53% on its listing day, while Samsung Electronics and SK Hynix dropped 0.43% and 0.46%, respectively. Heo Yul, a researcher at NH Investment & Securities, said, "Investors benchmarking the KOSPI are likely to sell existing stocks in their portfolios and buy LG Energy Solution," adding, "Downside volatility of major stocks within the KOSPI index may increase during the listing week." Kwak Byung-ryul, a researcher at Leading Investment & Securities, said, "The KOSPI is expected to gradually recover as visibility improves regarding changes in U.S. monetary policy and the Ukraine crisis avoids extreme conflict, which currently damages investor sentiment," but also noted, "We need to consider the possibility that supply and demand issues may extend until mid-March, when LG Energy Solution is expected to be specially included in the KOSPI 200 due to portfolio reshuffling."

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