[Practical Finance] Unpredictable Secondary Batteries... Is the Alternative Still Semiconductors?

Volatility in Secondary Battery Stocks Buying Frenzy Expected to Ease
Strong Semiconductor, Earnings Improvement, Robot & India Themes Attract Attention Amid Industry Recovery Expectations

August is expected to be a period when stock investors face a dilemma over whether to invest in secondary batteries or not. No one can be certain when the secondary battery craze that shook the domestic stock market in the first half of the year will subside. However, the dominant analysis is that the 'cracks' have already begun, as secondary battery-related stocks plummeted simultaneously at the end of last month, wiping out tens of trillions of won in market capitalization in a single day. In the securities industry, there are even laments of 'giving up on analysis' due to excessive supply-demand imbalances that cannot be explained by data. Along with investors' expectations, anxiety is also growing amid sharp volatility.

Concerns Over Excessive Concentration in Secondary Batteries... Who Are the 'Post-Secondary Battery' Candidates?

The financial investment industry has expressed concerns about the recent concentration in secondary batteries. The recent sharp declines and rises are seen as a 'Dead Cat Bounce'?a situation where stock prices fall sharply and then temporarily rebound?and the realistic advice is that if one lacks the courage to newly invest in secondary batteries at this point, it is better to consider new investment ideas. Lee Kyung-min, a researcher at Daishin Securities, pointed out, "In the short term, a correction process for the excessive flow is inevitable," adding, "Even if the rebound continues a bit more, it is time to be cautious of the aftershocks of excessive concentration in secondary battery material stocks."

Lee Jin-woo, a researcher at Meritz Securities, also expressed concern, saying, "The stock market is showing astonishing volatility every time, almost comparable to the cryptocurrency market," and "Everyone clearly knows the market is overheated, but there is no way to intervene." He continued, "Ultimately, secondary battery companies seem to be heading toward a chicken game scenario, and the choice is either to 'join or ignore,'" asserting, "It is difficult to predict when the market will stabilize, but looking at the 'numbers (performance),' there is a clear signal to buy industries other than secondary batteries."

So, who are the candidates for the 'post-secondary battery' era? Although forecasts vary by securities firms at this point, the common intersection is 'semiconductors.' There is no disagreement that Samsung Electronics and SK Hynix, which suffered severe performance slumps in the first half of the year, will achieve clear industry improvements from the second half due to the full-scale effects of production cuts and increased demand.

Supporting this, the Korea Exchange's KRX Semiconductor Index rose to 3,672.32 (as of the closing price on July 28), marking the highest level in one year and three months since April 26 last year (3,698.29). Lee Eun-taek, a researcher at KB Securities, said, "In the August sector strategy, we are upgrading the semiconductor weighting to 'increase,'" and predicted, "The semiconductor sector's outperformance will continue until the end of this year." Park Sang-hyun, a researcher at Hi Investment & Securities, noted, "The long-awaited semiconductor production cut effect was confirmed in the semiconductor inventory index in June," adding, "While the full-scale inventory adjustment will contribute to the semiconductor industry's bottoming out, the remaining task is demand, that is, the recovery of semiconductor exports."

Institutions Concentrate on Buying Naver... Attention on Undervalued IT Sector

Hints can also be found in the stocks that institution investors with stable investment tendencies have recently concentrated on buying. In July alone, the top stock by net purchases from institutional investors (based on transaction value) was Naver, with a total purchase amount of 426.338 billion won. Naver's stock price rose to the 400,000 won range around July-August 2021 but steadily declined afterward, falling to the mid-100,000 won range in the second half of last year. While global big tech companies are rushing into the generative artificial intelligence (AI) market, Naver, the representative domestic IT company, was excluded from the competition, leading to waning investor interest.

However, the atmosphere has recently reversed sharply as it is expected to post record quarterly earnings in the second quarter. The upcoming release of the AI model 'HyperCLOVA X' at the end of this month is also a positive factor. Its greatest strength is the overwhelmingly larger amount of Korean language training data compared to AI models introduced earlier by global companies. Reflecting these expectations, institutional investors hurriedly concentrated their purchases on Naver. The second-ranked stock by institutional net purchases was S-Oil, with 113.84 billion won, followed by Korean Air (106.43 billion won), SK Hynix (101.731 billion won), and Rino Industries (83.648 billion won). However, even the combined net purchases of the second to fourth-ranked stocks by institutional investors did not reach Naver's net purchase amount. Foreign investors also bought about 200 billion won worth of Naver shares last month.

KB Securities identified three themes worth attention from a more mid- to long-term perspective: 'eco-friendly, robots, and India.' The Ministry of Trade, Industry and Energy announced on the 27th of last month the 'Energy New Industry Export Power Strategy,' which includes plans to establish a policy fund of about 500 billion won and expand public-private financial investment exceeding 100 trillion won. Ha In-hwan, a researcher at KB Securities, said, "There is likely to be a series of measures supporting the growth of related (eco-friendly energy) items," specifically citing 'offshore wind power' and 'nuclear power.'

The robot theme is also attracting expectations for investment and deregulation in related industries, as the government is expected to soon announce 'Advanced Robot Industry Strategy 1.0.' Lastly, India is considered the country most likely to benefit from the supply chain restructuring led by the United States. It is forecasted that trade between India, regarded as the next-generation market after China, and Korea will expand. Researcher Ha explained, "India's share in Korea's total exports is still only about 3%," adding, "Soon, Korea's top export destination will change from China to the United States, and outside the U.S., the importance of India and Southeast Asia is increasing."

Securities Industry Anticipates 'Autumn Rally'

Last month, the U.S. Federal Open Market Committee (FOMC) took a 'baby step' (0.25 percentage point hike), meeting market expectations. However, it is difficult to be certain whether the interest rate hike cycle has definitively ended, as concerns about inflation have not been fully resolved. The market is focusing on Federal Reserve Chairman Jerome Powell's remarks at the Jackson Hole meeting scheduled for the end of this month and expects that the stock market will find it difficult to show a clear direction for the time being. Han Ji-young, a researcher at Kiwoom Securities, said, "Whether there will be additional rate hikes after September holds the key to the stock market's level-up," adding, "Until then, we need to check two employment and inflation indicators, so a dull stock price trend will continue." She added, "Chairman Powell's stance at the Jackson Hole meeting could become more hawkish or dovish depending on employment and inflation data in August," and "Considering this, it is appropriate to prepare for another cautious market around mid-August regarding Fed tightening."

There is also an analysis that such a situation reduces the stock market's sensitivity to monetary policy, thus having little impact. Roh Dong-gil, head of the stock strategy team at Shinhan Investment Corp., predicted, "Even if additional rate hikes occur in the fourth quarter, if the perception of the 'end of the hike cycle' does not change, the stock market will not react sensitively."

Moreover, expectations for an 'autumn rally' following the spring rally are not few. Lee Eun-taek, a researcher at KB Securities, forecasted, "The stock market rally is expected to resume after summer, with gains similar to the 'spring rally,'" adding, "While the spring rally was driven by consumer price stability and a decline in government bond yields, the autumn rally will be led by 'core inflation' stability and earnings growth." KB Securities set the year-end KOSPI target at '2,920 points.'

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