[MarketING] Overheated but Uncooling 2nd Battery Stocks

The KOSPI index rose for the second consecutive day, reclaiming the 2500 level. It is the first time in eight months since August 18 last year (2508.05) that the KOSPI closed above 2500. The secondary battery stocks, which have been rising continuously this year amid concerns of overheating, supported the index's increase with their strong upward momentum.

On the 10th, the KOSPI closed at 2512.08, up 21.67 points (0.87%) from the previous session. The KOSDAQ ended at 887.78, rising 7.71 points (0.88%).

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Foreign investors supported the KOSPI's rise, while individual investors bolstered the KOSDAQ. On that day, foreign investors net purchased 740.9 billion KRW in the securities market. Individuals bought 551.8 billion KRW in the KOSDAQ market. Institutions sold 28.3 billion KRW in the securities market and 310.1 billion KRW in the KOSDAQ market.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The KOSPI rose mainly due to foreign buying, and the KOSDAQ due to individual buying. The rise was led by semiconductor and secondary battery stocks, with secondary battery stocks showing strength despite concerns of overheating, driven by expanded expectations of benefits from the U.S. Inflation Reduction Act (IRA)."

The strong performance of secondary battery stocks continued. On the securities market that day, LG Energy Solution rose 2.76%, LG Chem 5.04%, and Samsung SDI 1.49%. POSCO Holdings surged 7.85% on expectations for its lithium business. In the KOSDAQ market, the top two by market capitalization, EcoPro BM and EcoPro, continued their sharp rises. EcoPro BM increased by 13.59%, and EcoPro by 24.70%.

EcoPro's stock price surpassed 700,000 KRW after rising for four consecutive days. During the session, it reached 744,000 KRW, setting a new all-time high since its listing. Its market capitalization reached 18.6833 trillion KRW, surpassing LG Electronics (18.4922 trillion KRW) and SK Innovation (18.2804 trillion KRW). EcoPro has risen 44.83% just this month.

EcoPro BM also rose for four consecutive days, touching 300,000 KRW during the session and setting a new 52-week high. Its market capitalization reached 28.6069 trillion KRW, overtaking Kakao (25.8927 trillion KRW). It has risen more than 30% this month alone.

The continuous inflow of individual buying is driving the price increases of these stocks. On that day, individuals bought the most POSCO Holdings with 149.1 billion KRW, followed by EcoPro (112.4 billion KRW) and EcoPro BM (88.0 billion KRW). Conversely, institutions appeared to be realizing profits. Institutions net sold EcoPro BM by 97.7 billion KRW, the largest amount, followed by EcoPro (66.5 billion KRW) and POSCO Holdings (35.7 billion KRW). Foreign investors net sold POSCO Holdings by 116.4 billion KRW, the largest amount, followed by EcoPro with 42.2 billion KRW sold. However, they net purchased EcoPro BM by 11.7 billion KRW.

Despite concerns of overheating, the strong performance of secondary battery stocks continues, and whether the price rise will persist is expected to be determined during the earnings season.

Lee Kyung-min, a researcher at Daishin Securities, said, "The KOSPI continues its upward trend despite the slowdown in global stock market momentum because the strength of secondary battery-related stocks has persisted regardless of the global macroeconomic environment and stock market trends." He added, "Global economic uncertainty and the retreat of expectations for interest rate cuts have led to a rebound in the dollar and bond yields, increasing valuation pressure on the KOSPI and the secondary battery sector."

There is an opinion that volatility could increase if first-quarter earnings fall short of expectations. Lee said, "As the first-quarter earnings season approaches, the gap between fundamentals and current stock prices will be confirmed. In particular, the first-quarter secondary battery export amount is expected to be lower than that of the third quarter of last year, making it unlikely that earnings will meet or exceed market expectations." He added, "Confirming earnings that are worse than market expectations could mark the beginning of increased volatility."

It is also possible that secondary battery stocks may lose their leading position to semiconductors. Lee Jae-sun, a researcher at Hyundai Motor Securities, said, "For secondary battery stocks to maintain their leading position, institutional and foreign investor demand must strengthen, which requires an improvement in operating profit margins." He added, "One factor determining the relative strength of secondary battery stocks compared to semiconductors is the 12-month forward operating profit margin consensus spread. While secondary battery margins have stagnated, the semiconductor sector has begun to rebound."

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