[MarketING] Korean Shipbuilding Stocks Set Sail with the Tailwind of a 'Supercycle'

KOSPI Closes Lower for Two Consecutive Days
KOSDAQ Weakens After Four Days

The KOSPI continued its decline for the second day. Despite foreign and institutional selling causing the index to briefly fall below the 2600 level during the session, it managed to close while holding above 2600. Due to caution over upcoming remarks from U.S. Federal Reserve (Fed) officials scheduled for this week and concerns about short-term overheating, a sluggish trend is expected to persist for the time being. While the overall index showed weakness, shipbuilding stocks sailed smoothly amid growing expectations of a supercycle.

KOSPI Falls for Second Day... Barely Holds 2600 Level

On the 20th, the KOSPI closed at 2604.91, down 4.59 points (0.18%) from the previous day. The KOSDAQ ended the session at 886.41, down 2.20 points (0.25%). The KOSPI briefly dipped below the 2600 mark in the morning. After several days of slight gains, the KOSDAQ turned bearish for the first time in four days.

[Image source=Yonhap News]

Foreign and institutional selling continued to pull the index down. On that day, foreigners net sold 281.8 billion KRW in the KOSPI market and 21.3 billion KRW in the KOSDAQ market. Institutions sold 135.4 billion KRW and 70.7 billion KRW respectively. Individual investors were the only buyers, net purchasing 409.9 billion KRW and 112.1 billion KRW, but it was insufficient to prevent the index from falling.

Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "Both the KOSPI and KOSDAQ declined due to selling pressure from foreigners and institutions. Caution over upcoming Fed officials' remarks this week and concerns about economic slowdown despite China's interest rate cut were reflected, leading to weakness across Asian stock markets."

On the same day, the People's Bank of China lowered the 1-year Loan Prime Rate (LPR) to 3.55% and the 5-year LPR to 4.2%, each by 0.1 percentage points. This was the first LPR cut in 10 months, with the LPR effectively serving as China's benchmark interest rate. Kim said, "Despite the LPR rate cut, demand for more concrete stimulus policies expanded, causing the Chinese stock market to show no clear direction. The Hong Kong stock market also weakened due to disappointment over the 5-year LPR cut being lower than market expectations."

China shifted to a 'With COVID-19' policy at the end of last year, but the 'reopening' effect has fallen short of expectations, and concerns about economic recession are growing. As the government moves to stimulate the economy, the market had anticipated the People's Bank of China to lower the LPR. Earlier, on the 13th, the People's Bank supplied liquidity of 2 billion yuan to the market through a 7-day reverse repurchase agreement (reverse repo), lowering the applied rate by 0.1 percentage points, and on the 15th, it cut the 1-year Medium-term Lending Facility (MLF) rate for the first time in 10 months.

Shipbuilding Stocks Rise on Supercycle Expectations

Although the overall index showed weakness, shipbuilding stocks stood out with a notable upward trend reflecting supercycle expectations.

On that day, Hanwha Ocean rose 12.02% compared to the previous day, while HD Hyundai Heavy Industries (3.9%), HD Hyundai Mipo Dockyard (2.0%), Samsung Heavy Industries (1.47%), and Hyundai Mipo Dockyard (0.71%) also closed higher.

Researcher Kim said, "In the absence of leading sectors, shipbuilding stocks rose positively due to expectations of improved earnings, favorable ship price increases, and ongoing discussions on Ukraine reconstruction projects."

In the securities industry, shipbuilding stocks are expected to enter a supercycle due to rising ship prices and improving business conditions. The new shipbuilding price index by Clarkson Research, a UK-based shipbuilding and shipping market analysis firm, recorded 170.76 points as of the 16th, up 0.29 points from the previous week. The Clarkson new shipbuilding price index is a representative leading indicator for shipbuilding stocks, and recording above 170 points is the first time since January 9, 2009, when it reached 171.96 points.

Maritime cargo volume is also in good condition. Han Young-soo, a researcher at Samsung Securities, said, "Looking at the monthly maritime cargo volume growth rate index published by Clarkson, the index recorded negative growth last year but has shown positive figures for five consecutive months from January to May this year. Even considering the base effect, this is a healthy recovery." He added, "Clarkson forecasts maritime cargo volume to grow by 1.8% this year and 3.1% next year compared to 2022. The encouraging part is that these forecasts have not been revised downward since the beginning of the year."

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