As Soon as the Yoon Administration Launched, the KOSPI Plummeted... Investment Strategies Explored Through Market Cap and Policies

[Asia Economy Reporters Lee Seon-ae and Lee Myung-hwan] Can the Yoon Suk-yeol administration, which started in a bear market, strengthen the stock market's resilience through active promotion of new growth industries? As soon as the new government took office, market indices plunged to their lowest levels of the year, creating an atmosphere of widespread fear. We sought investment opportunities by analyzing changes in market capitalization that reflect the new government's promoted industries and leading sectors.

Secondary Battery Leading Sector

The top market capitalization rankings on the KOSPI and KOSDAQ are occupied by leading sectors driving Korean industry. In particular, the first and second positions in market capitalization on both KOSPI and KOSDAQ are held by companies that occupy a dominant position within Korea's core industries. This allows us to read the paradigm of Korean industry and identify future leading sectors, which can be utilized for investment strategies.

Comparing the top 10 market capitalization stocks on KOSPI and KOSDAQ as of May 10, 2017, when the Moon Jae-in administration began, and May 10, when the Yoon Suk-yeol administration took office, it is confirmed that secondary batteries have risen to the ranks of leading sectors and will lead the future paradigm of Korean industry. In the KOSPI market, SK Hynix has already been overtaken by LG Energy Solution for the second position.

The second position in KOSPI market capitalization reflects the leading stock and sector of the era, and thus follows the rise and fall of KOSPI. In 2007, the second position shifted from Korea Electric Power Corporation to POSCO; in 2011, from POSCO to Hyundai Motor; and in 2017, from Hyundai Motor to SK Hynix. The new second position emerged by surpassing the net profit of the previous second-ranked company. In 2006, POSCO's net profit was 3.2 trillion KRW, exceeding Korea Electric Power Corporation's 2.1 trillion KRW; in 2010, Hyundai Motor's net profit was 5.3 trillion KRW, surpassing POSCO's 4.2 trillion KRW; and in 2017, SK Hynix's net profit was 10.6 trillion KRW, exceeding Hyundai Motor's 4 trillion KRW. This common background explains the emergence of new second-ranked companies. Accordingly, the securities industry diagnoses secondary batteries (LG Energy Solution), electric vehicles (Hyundai Motor, Kia, etc.) as the leading sectors that will drive Korean industry going forward. Competition with semiconductors for leading sector status is expected to be intense. The KOSDAQ market is already led by secondary battery companies EcoPro BM, L&F, and Cheonbo.

A shift from a bio-centered paradigm to growth industries such as gaming and platforms is also evident. Naver, Kakao, Kakao Games, Pearl Abyss, and CJ ENM are examples. Since last year, the pandemic crisis has accelerated changes in the industrial paradigm, and competition for stock market leadership among heterogeneous industries (bio, gaming, platforms, etc.) in growth sectors continues. With a favorable policy environment and expectations materializing into performance, competition for leadership among gaming, platform, entertainment, and bio industries is expected to intensify further.

Investment Opportunities in Future Growth Engines under the Yoon Administration

The securities industry advises that investment opportunities can be found in the new government's promoted industries. The new government plans to activate six new industries. The Presidential Transition Committee announced a new growth strategy on the 25th of last month, presenting six future growth industries that the Yoon administration will nurture: ▲Energy ▲Defense and Aerospace ▲Bio ▲Artificial Intelligence ▲Carbon Neutrality Response ▲Smart Agriculture.

Among these, the energy industry is viewed by the securities industry as the sector with the most different direction compared to the previous government. The government's policy respects international carbon neutrality goals while increasing the utilization of nuclear power. Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "While promoting the acceleration of hydrogen ecosystem growth and securing technology for solar and wind power, it is inevitable to adjust the renewable energy share target due to the burden of electricity costs." There is also analysis emphasizing the importance of passing the amended Hydrogen Act, which passed the bill subcommittee after about a year since its proposal. Na Seung-doo, a researcher at SK Securities, pointed out, "For fostering the hydrogen industry, rapid processing of the amended Hydrogen Act and establishing definitions and standards for clean hydrogen are very important."

Bio is also analyzed to have increased competitiveness through the COVID-19 pandemic. The new government has focused policies on responding to new infectious diseases and securing vaccine sovereignty. Shin Jung-ho, a researcher at eBest Investment & Securities, explained, "Since 2018, the sectors with rapidly increasing export volumes are mobility and biohealth. Although biohealth has received less attention compared to mobility, its export volume proportion is high and should be noted."

Artificial intelligence and mobility, core elements of the Fourth Industrial Revolution, have a policy direction of promoting the servitization of manufacturing. The government announced plans to link the two to activate autonomous vehicle development and commercialize Urban Air Mobility (UAM). Regarding this, Hana Financial Investment Research Center analyzed, "(The policy) basic direction promotes the transition to future automotive technologies, which is positive for the development of the automotive industry."

The defense industry is expected to benefit amid concerns about a new cold war following the Ukraine war. The government is promoting advanced scientific weapons research and development and linking it to export industrialization, while also aiming to accelerate growth in the closely related space industry.

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