Q4 'Surprise Earnings'... Retail Investors' 'Investment Sentiment' Heats Up

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[Asia Economy Reporters Ji Yeon-jin and Lee Min-woo] Major listed companies posted “surprise earnings” in the fourth quarter of last year. Companies that were directly hit by the COVID-19 pandemic appear to have entered a full-fledged recovery phase starting in the second half of the year. Individual investors who flocked to the stock market since last year are expected to continue their net buying rally based on these solid earnings.

According to the electronic disclosure system on the 28th, Kia Motors recorded sales of 16.9105 trillion KRW and operating profit of 281.6 billion KRW in the fourth quarter of last year. Compared to the previous year, sales increased by 5% and operating profit by 117%, marking the highest quarterly figures ever. Net profit for the period also surged 182% to 976.8 billion KRW. The popularity of high-margin recreational vehicles (RVs) raised the average selling price (ASP) both domestically and internationally, and the increase in option adoption rates contributed significantly to the new car effect.

Listed companies under the LG Group also demonstrated strong performance. LG Household & Health Care posted consolidated sales of 2.0944 trillion KRW (+4%) and operating profit of 256.3 billion KRW (+6%) in the fourth quarter of last year. Duty-free cosmetics and cosmetics sales in the Chinese market increased by 7% and 41% respectively compared to the previous year, far exceeding market expectations. In particular, on an annual basis last year, sales and operating profit are expected to reach 7.8445 trillion KRW and 1.2209 trillion KRW respectively, surpassing competitor Amorepacific to become the number one in the cosmetics industry.

During the same period, LG Display also succeeded in turning a profit with operating profit of 685.5 billion KRW, about twice the market forecast (314 billion KRW), and LG Chem also returned to profitability. Samsung Electro-Mechanics saw an 82% increase in operating profit. The surge in demand for smartphone and electronic product replacements due to the COVID-19 pandemic and the rise of the non-face-to-face era benefited LG Display and Samsung Electro-Mechanics. LG Display supplies smartphone displays, while Samsung Electro-Mechanics supplies cameras and other components.

As in last year, individual investors have poured massive funds into the stock market from the beginning of this year, driving stock prices up. According to the Korea Exchange, individual investors have net purchased 23.6315 trillion KRW up to the day before this year. This amount accounts for 37% of last year’s total net purchases (63.8083 trillion KRW) before the first month of this year even ended. Net purchases in the KOSPI market alone reached 20.6776 trillion KRW. From the first trading day of the year, investors bought stocks worth 1.0031 trillion KRW and have maintained a steady daily net buying trend in the trillion KRW range. On the 11th, they set a record for the largest single-day net purchase ever with 4.4921 trillion KRW. Subsequently, the top three largest single-day net purchases in the KOSPI market?4.2214 trillion KRW on the 26th and 2.3124 trillion KRW on the 12th?also occurred this month.

Based on the solid earnings of major listed companies, the net buying streak by individual investors is expected to continue for the time being. There is also a substantial amount of standby funds in the stock market. According to the Korea Financial Investment Association, as of the 26th, investor deposits stood at 69.127 trillion KRW. Although this is a slight decrease from the record high of 74.456 trillion KRW on the 12th, it still maintains a level more than double the 29.86 trillion KRW recorded on January 2 of last year.

The scale of “debt investment”?investing with borrowed money?also remains in the mid-21 trillion KRW range after hitting an all-time high of 21.633 trillion KRW on the 25th. Kim Yong-gu, Senior Research Fellow at Hana Financial Investment, said, “If the recent stock market rally was driven by simple expectations, individual investors will now use earnings as a trigger to assess companies’ fundamentals. The stock market boom is a global phenomenon, and Korea is at an average level, so although some correction may follow the rapid rise, individual investments will continue.”

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