Riding the Presidential Election Wave... Beneficiary Sector is Construction "Flood of Overweight Strategies"

[Asia Economy Reporter Lee Seon-ae] As the March 9 presidential election approaches, the securities industry is busy searching for beneficiary sectors. Although it is difficult to expect a presidential election boom in the market due to increased volatility in the global financial markets, the dominant opinion is that the returns of beneficiary sectors based on highly feasible pledges have investment value.

On the 1st, the financial investment industry highlighted construction as the beneficiary sector of the presidential election. Moreover, it is a common pledge policy of both ruling and opposition candidates and is most likely to be upheld regardless of who wins. Ki-ryong Kim, a researcher at Yuanta Securities, said, "If candidate Yoon Seok-yeol is elected, it will be advantageous for large housing developers with a high proportion of private housing projects," citing Hyundai Construction, DL E&C, GS Construction, and Daewoo Construction as beneficiary stocks. He added, "If candidate Lee Jae-myung is elected, mid-sized and small construction companies will benefit more than large companies with a relatively low proportion of public-led volume." The relevant stocks include Kumho Construction, Gyeryong Construction, Taeyoung Construction, and Kolon Global.

Moon-jun Jang, a researcher at KB Securities, also said, "The construction sector's overseas business proportion and the proportion of Russia and Ukraine in overseas business are all low, so the impact of the current situation on the sector's stock price is limited," adding, "From the perspective of sector stock prices, the presidential election scheduled for the 9th is more important." He continued, "Depending on the election results, mid- to long-term housing policies and supply scale can be clarified more clearly," and "I prefer to increase the weighting of large construction stocks with a high proportion of housing projects."

Additionally, both candidates have presented pledges that will bring positive effects to the overall market. The common points of Lee Jae-myung and Yoon Seok-yeol's capital market policies are protecting small shareholders and regulating short selling. Both candidates have also announced plans to abolish stock-related taxes such as transaction tax and capital gains tax.

Candidate Lee's capital market-related policies include △abolishing securities transaction tax △strengthening the responsibility of pension funds for stock market stabilization △prohibiting discrimination in short selling borrowing periods and regulating unfair short selling transactions △introducing fines for stock price manipulation and special judicial police △prior allocation to parent company shareholders when a subsidiary is listed after a physical division △cracking down on major shareholders' illegal activities during mergers and acquisitions. Candidate Yoon's policies include △abolishing stock capital gains tax △applying preferential tax rates for long-term stock holdings △limiting unlimited insider on-floor sales △adjusting individual short selling collateral ratios and introducing short selling circuit breakers △granting existing shareholders preemptive rights to new shares during spin-off listings of new businesses.

Meanwhile, the dominant view is that the 'honeymoon effect' on the stock market itself following the inauguration of a new president will be limited. According to the Korea Exchange, the KOSPI returns for one year after the presidential election were positive under the Kim Young-sam (+38.5%), Roh Moo-hyun (+40.3%), and Moon Jae-in (+6.6%) administrations, but negative under the Kim Dae-jung (-7.9%), Lee Myung-bak (-36.9%), and Park Geun-hye (-3.5%) administrations. Seong-geun Kim, a researcher at Korea Investment & Securities, evaluated, "The KOSPI returns in the first year after the announcement of the president-elect are somewhat erratic."

Jun-ho Byun, head of investment strategy at Heungkuk Securities, analyzed, "Looking at the case of the Roh Tae-woo administration, when direct elections began, the KOSPI rose 20% in the first year of inauguration, but this presidential election effect has weakened recently," adding, "Since 2000, when foreigners' influence on the Korean stock market increased, the stock market returns after four presidential inaugurations have not been high." He continued, "Cases where the KOSPI rose after a presidential inauguration are judged to have been influenced by a favorable global economy or a friendly stock market environment," and added, "Given the current economic situation requires a government’s tight stance, it is difficult for the major party candidates to express specific and new policy momentum or strong willingness for economic stimulus, so expectations based on new government hopes immediately after the election should be avoided."

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