Chasing Political Themes Leads to 'Bankruptcy'... Increasing 'Alienation' as Elections Approach

Hwacheon Machinery, which surged last month, weakens this month
Wider Planet, which surged in December, underperforms this year
Political theme stocks have also fallen immediately after election days in the past

On the eve of the 22nd National Assembly election, political theme stocks are losing momentum in the domestic stock market. Until early last month, stock prices tended to rise following the approval ratings of prominent politicians, but most theme stocks have declined over the past month. Market experts have advised caution in investing, as it is difficult to predict the price trends of political theme stocks.

According to the financial investment industry on the 9th, Hwacheon Machinery's stock price fell about 45% within 20 days after reaching a record high on the 19th of last month. Hwacheon Machinery's stock price rose 150% until March 19 this year. Daeyoung Packaging showed a similar trend to Hwacheon Machinery. Its stock price rose more than 80% until the 25th of last month, then dropped more than 27% afterward.

Hwacheon Machinery and Daeyoung Packaging are listed companies linked as theme stocks of Representative Cho Kuk of the Cho Kuk Innovation Party. Former auditors and outside directors joined the theme stocks because they were alumni of Representative Cho Kuk. Although Representative Cho stated via social networking services (SNS) that he had no connection with Hwacheon Machinery, the stock price of Hwacheon Machinery surged between February and March this year. Hwacheon Machinery also stated in a disclosure response on the 19th of last month that "it is being mentioned as a theme stock of a specific politician" and "it is unrelated to the company's past and current business activities." Taking advantage of the rapid price increase, Chairman Kwon Young-yeol of Hwacheon Machinery sold 510,000 shares over two days from the 19th to the 20th of last month.

Wider Planet, known as a theme stock of Han Dong-hoon, the Emergency Response Committee Chairman and General Election Committee Chairman of the People Power Party, surged last December but has shown a sluggish trend this year. After news broke that actor Lee Jung-jae, a high school classmate of Chairman Han, would participate in Wider Planet's paid-in capital increase, the stock price soared. On December 21 last year, the stock price reached 29,850 won intraday. This was a 985% increase compared to the low of 2,750 won recorded on December 4 of the same year. La Mong Lane also rose 110% within three days after Lee Jung-jae decided to participate in the capital increase, but has since shown a continuous weak trend.

Political theme stocks also fluctuated in the domestic stock market ahead of the general election four years ago. On January 2, 2020, the first trading day of the year, four listed companies hit the daily price limit. These included stocks related to Ahn Cheol-soo, a member of the People Power Party, such as Sunny Electronics and Damul Multimedia (now KRM). At that time, related stocks surged as Ahn declared his return to politics. AhnLab's stock price also rose more than 20% then. Ahead of the 21st National Assembly election, when political attention was high, political theme stocks surged sharply in the short term, and many individual investors engaged in follow-up trading. After the election, most investors recorded losses.

Nam Gil-nam, Senior Research Fellow at the Korea Capital Market Institute, explained in a report titled "Concerns about Political Theme Stocks Related to the 21st General Election," "Political theme stocks, whose prices surge detached from the intrinsic value of companies, are likely to experience price declines around the election day. Analyzing 70 political theme stocks during the 16th to 19th presidential elections shows that not only theme stocks related to losing candidates but also those related to winning candidates experienced relative price declines immediately after the election day."

Researcher Nam added, "No matter how much active responses from investors, listed companies, and regulatory authorities are emphasized, as long as there are limitations in the stock market, it is difficult to eradicate the phenomenon of political theme stocks. For a fundamental solution, it is necessary to eliminate the practice of collusion between politics and business and improve the market structure's fundamentals," he urged.

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