|Employees look into monitors as they work at a dealing room in Hana Bank’s headquarters in central Seoul on Sept. 8. The KOSPI closed at 2,384.28 on Thursday, up 0.33 percent from the previous trading session. Yonhap|
Companies show strength despite weakened won and US IRA
By Anna J. Park
As the won-dollar exchange rate soared to a 13-year high recently, local stocks have generally become less attractive to foreign investors due to the weakened Korean currency. But some local stocks still remain popular among foreign investors. They have been focusing lately on buying LG Energy Solution (LGES) and Hyundai Motor. A weak won makes Korean automobiles cheaper to buy overseas, while LGES is expected to benefit from the implementation of the U.S. Inflation Reduction Act (IRA) by building a joint venture battery plant in America.
According to the Korea Exchange (KRX), foreign investors were net sellers of local stocks this month, dumping 1.1 trillion won ($790 billion) worth of Korean shares since the start of the month. During their selling spree of local stocks this month, however, foreign investors net-purchased 128 billion won worth of Doosan Enerbility stocks, followed by 127 billion won worth of Hyundai Motor shares and 108 billion won worth of LGES stocks. Kia, Hanwha Solution and SK hynix were also on the shopping lists of foreign investors this month.
In July and August of this year, LGES and Hyundai Motor were the two favorites among foreign investors. Foreign investors net purchased over one trillion won worth of LGES stocks during July and August.
Market experts point out that LGES’ plan to build a $4.4 billion electric vehicle battery plant in the U.S. under a partnership with Honda has contributed to the recent increase in the company’s value in the local stock market. While the mass production of lithium-ion battery cells from the plant is expected to begin in 2025, LGES’ joint venture factory with GM in Ohio recently began operations, positively affecting the upward movement of its stock price.
“Amid deepened conflicts with China, the U.S. has focused on establishing its own battery value chain. Given that LG Energy Solution has been the most aggressive increasing production facilities in the U.S. against the backdrop of the blossoming electric vehicle market, the company’s stable growth is expected in a few years to come,” Lee Hyun-wook, an analyst at IBK Securities, said.
The fact that the IRA offers incentives to renewable energy companies whose production is partially based in the U.S. also contributes to LGES’ upward stock movement.
The firm’s stock price bottomed out at 352,000 won in early July, but increased nearly 40 percent in the past two months, finishing at 486,500 won last Thursday.
Both Hyundai Motor and Kia are also included among the top stock choices of foreign investors lately.
Hyundai Motor has been the second most net-purchased Korean stock by foreign investors since July this year, while Kia was the eighth most net-purchased local stock during July and August and the fourth most purchased stock in September.
The two automobile companies’ strong reliance on exports made them representative beneficiary companies from the weakened won and strengthened dollar. The automobile firms’ continual increase in car sales in key regional markets have also attributed to their popularity among foreign investors.
Market analysts say the two firms are expected to post earnings surprises in the third quarter as well, following the second quarter.
“The increase in the won-dollar exchange rate has been salient in the third quarter, at a higher rate than the second quarter when the firms posted earnings surprises, while car sales have consistently increased. Thus, it is likely that the companies would record another earnings’ surprise in the third quarter as well,” Kim Jin-woo, analyst at Korea Investment & Securities, said.
Doosan Enerbility and Hanwha Solution are also included on the list of the 10 most net-purchased local stocks, thanks to their expected tax benefits from the IRA.
“The soaring won-dollar exchange rate could hamper local stocks’ further increase potential, yet it could be a boon for companies that rely heavily on exports to the U.S. market,” Shin Joong-ho, an analyst at eBest Investment, pointed out, adding that sectors like secondary batteries, auto parts, agricultural and construction facilities have logged growths in their exports to the U.S. during the past five years.