"Buy Growth Stocks at Low Prices Rather Than Entering Raw Materials Now"

Raw Material Prices Rise 8.6% in One Week
"Highest Increase Since Second Week of July 1974"
Concerns Over Short-Term Overvaluation of Raw Materials... Impact of Ukraine Crisis
"Value in Growth Stocks"... Focus on Naver and Kakao

[Asia Economy Reporter Hwang Yoon-joo] Recent advice suggests investing in growth stocks, which have become more attractive in price, instead of raw materials that have surged sharply. This analysis is based on the fact that while raw material prices have reached levels similar to those during the past oil shock, growth stocks have become less burdened by high prices.

According to the Bloomberg Commodity Spot Index on the 4th, raw material prices rose 8.6% over the past week and 22.6% over the past three months. The reason for the surge in raw material prices is the aftermath of Russia's invasion of Ukraine. Although international oil prices and metals had been on an upward trend, the acceleration began after Russian President Putin announced the start of military operations on February 24 (local time).

Before and after the Ukraine invasion (February 23 to March 3), Dubai crude oil jumped 24.5% from $93.6 per barrel to $116.6 per barrel, and West Texas Intermediate (WTI) rose 16.8% from $92.1 per barrel to $107.6 per barrel. Nickel prices also increased 16.5% from $24,700 per ton to $28,800 per ton.

Lee Jin-woo, a researcher at Meritz Securities, stated, "The recent one-week increase in raw material prices is the highest since the second week of July 1974," and added, "There is a high possibility of a 'short-term overshooting' now." He further explained, "Unlike the soaring raw materials, the stock market, especially the growth stock-centered market, has seen a significant reduction in price burden. The number of companies hitting new lows has increased compared to the COVID-19 shock period, and the cumulative performance of Nasdaq and raw materials has even reversed from before COVID-19 to the present."

According to data from FnGuide on 'Average Returns and Net Asset Changes by Fund Type,' raw materials are the only asset class generating real profits. Overseas raw material funds have posted a year-to-date return of 17.10%. Their 3-month and 6-month returns reached 24.74% and 22.89%, respectively.

In contrast, domestic equity funds (overall) and overseas equity funds (overall) recorded year-to-date returns of -10.33% and -9.63%, respectively. Their 3-month returns were -7.39% and -8.93%, and 6-month returns were -12.54% and -8.35%, all negative.

This is why there are calls to turn to stocks, as raw material prices are considered overvalued. Growth stocks, in particular, have been struggling. Naver opened trading at 325,500 KRW on March 4, 2022, down 30% from its intraday high of 465,000 KRW on July 26, 2021.

During the same period, Kakao also started at 96,200 KRW on March 4, 2022, down 44.3% from its intraday high of 173,000 KRW on June 24, 2021. Compared to the beginning of the year, Naver fell 13.4% and Kakao dropped 15.9% as of the opening price on the 4th.

Kim Jin-woo, a researcher at KTB Investment & Securities, said, "Kakao is expected to see increased sales from related services due to the activation of Talk Channel in 2022, and I recommend buying before the end of March." Regarding Naver, he added, "Naver is recommended for purchase as it is entering the monetization phase for services with sufficient growth potential such as solutions, cloud, and webtoons."

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