South Korea’s blue chip Kospi stock market lost almost a quarter of its value in 2022, ending down -24.9%, it was the weakest major Asian stock market this year with its worst performance since 2008. The Kospi was closed for a holiday on the last trading day of the year and closed down -3.3% for the week. Weakness in semiconductor stocks and internet giants particularly hurt the Index with Samsung Electronics being a major component and down 26% decline. Kakao was down over 50%. Winners were in companies involved in the electric-vehicle supply chain and defense sector.
Energy Imports and Rising Interest Rates Hammered Korean Stocks
South Korea is an export economy, and it posted its first current-account deficit in two years in April. Surging oil prices are also hurting the won as they push up import costs. There were also geopolitical risks supporting the greenback and weakening the Won, a series of missile launches by North Korea year hurt sentiment also. Overseas investors sold a net $4.2 billion of local shares in June and that pattern didn’t improve through the year.
South Korea’s Monetary Policy Board decided today to raise the Base Rate to 3.25%, the highest level since June 2012 as expected with continuing US dollar strength. The move means the BOK has risen rates by 250 cumulative basis points since August 2021. This was the BOK’s sixth straight interest hike and the ninth increase since August 2021. Consumer price inflation remained high at 5.7% in October due to increases in electricity and gas fees and the accelerating price increases in processed food products, although increases in the prices of petroleum products have moderated.
South Korea’s headline inflation averaged 5.1% in 2022, the highest in more than two decades, amid signs that price growth appears to be easing recently. The Bank of Korea, which has tightened policy to fight price growth, says inflation could remain high above 5% in the coming months but gradually ease to average 3.6% in South Korea next year.
Top Performing South Korean Stocks for 2022
LG Energy Solution
LG Energy Solution was floated off in a $10.7 billion deal. The electric-vehicle battery maker was one of the bright spots. The IPO was split off from LG Chem Ltd. and is a major supplier to Tesla Inc. The stock was up 53% since its January debut and become the No. 2 weighted stock in the Kospi.
- Korea Aerospace Industries (+30%)
- Hanwha Aerospace Co. (+30%)
- Hyundai Rotem Co. (+30%)
There was a common theme for stock markets around the globe, defense sector stocks did well. The Russian invasion of Ukraine and China’s claims on Taiwan have led to a global arms race. This generated an export windfall for Korean defense firms. Korea Aerospace Industries Ltd., Hanwha Aerospace Co. and Hyundai Rotem Co. stocks rose more than 30% each.
Renewable Energy Stocks
- Hyundai Energy Solutions Co. (+138%)
- Hanwha Solutions Corp. (+28%)
Clean-energy stocks including Hyundai Energy Solutions and Hanwha Solutions Corp. were two of the biggest foreign beneficiaries from the US climate bill. Expectations are for a tax-credit windfall and reduced dependence on equipment from China. Bloomberg reports analysts remain bullish on the sector for next year, with the average 12-month price target on Hanwha Solutions implying potential for a further 40% return.
Hydro Lithium rose +1,515% in 2022 to be the biggest gainer for the year. Lithium stocks have been hot, we saw that in the Australian market. With the surge in energy prices and move towards electric vehicles lithium miners showed solid gains.
“2022 saw lithium stocks reach new highs as a higher-for-longer outlook took hold,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. 2023 could prove a pivotal year that tests the thesis “as more supply comes to market and the demand trajectory risks wobbling amid global economic slowdown,” he added.
Civil-engineering firm Korea SE Corp. changed its name to Hydro Lithium Inc. and created ambitious plans for new businesses in fields from EV battery materials and lithium mining to recycling and renewable energy.
“It added all the hottest business items including lithium into the company’s articles,” said Ahn Hyunsang, chief executive at Korea Investment Research Institute. “It’s like trading crypto coins with no substance. I don’t recommend it but people who love volatility could prefer.”
It sounds like a strategy adopted in the US markets when SPACs were pushed and run, most of them have since collapsed. Investors are waiting tio see if there is any substance here.
BGF Retail is South Korea’s largest convenience store operator and it soared +41% as an inflation trade. The CU store-chain operator has a $2 lunch menu ideal for consumers ravaged by inflation. The stock also benefited from the economy opening up from Covid-related restrictions on sports and outdoor activities and returns to schools and offices.
Worst Performing South Korean Stocks for 2022
Real Estate Risk
In Korea the real estate market fell, the overflow from the China property implosion, soaring interest rates and a plunging currency weighing. Credit risks of real estate project financing emerged, in 2023 monitoring carefully whether the risks escalate into a bigger scale is key for Korea.
Kakao and its three listed affiliates suffered the same fate was many overvalued tech companies hit by rising interest rates, low rates are essential for growth companies, especially loss-making ones. The Kakao group saw more than $48 billion in combined market value wiped out this year.
Further to the growth woes concerns over online monopolies and a temporary outage of the group’s services, including Korea’s No. 1 messenger app created more selling pressure. Kakaopay Corp. and KakaoBank Corp., were new IPOs in 2021 and have dropped below their initial public offering prices.
Samsung is the world’s largest chip maker and serves a wide range of end markets, including smartphones, laptops, televisions, appliances, and automobiles. The company reported its first quarterly profit decline in three years. Samsung Electronics estimated its third-quarter operating profit at 10.8 trillion won ($7.7 billion), down 31.7 percent from a year earlier. Samsung’s sales of 76 trillion won also missed analysts’ estimates.
Given that this weak performance may be more problematic from a broader macroeconomic standpoint. Clouds have been a dark shadow over semiconductor companies for a while, especially for companies with heavy exposure to PCs/laptops, such as Samsung
- Wemade Co. (-81%)
- Vidente Co (-87%)
- Wemade Max Co (-75%)
Game developer Wemade Co surged more than 800% in 2021 and is down 81% this year with steep declines in cyptocurrencies and after Korean exchanges decided to delist its token. The companies affiliate Wemade Max Co., which soared 1,500% last year, lost three quarters of its value in 2021. The FTX fraud was everywhere with its damage, Vidente Co., had discussed a possible sale of its holding in crypto exchange Bithumb to FTX, saw 87% of its value wiped out.
Squid Game Affect
- Bucket Studio Co. (-70%)
- Showbox Corp. (-42%)
In 2021 the Netflix Korean made series “Squid Game” was a global phenomenon. This led to a surge in stock prices in entertainment properties hoping to be the next “Squid Game”. Bloomberg analyst pointed out Bucket Studio Co. is down about 70% in 2022, while Showbox Corp. is down 40% after both surged last year on excitement over their ties to the series. An example of hope and crowd mentality surely, right in the midst of the crypto boom and bust. FTX and its founder a victim of its own squid game.
How Global Indices fared in 2022
Asia Pacific Region Equity Markets in 2022
- Japan’s Nikkei: (-0.5% for the week/-9.4% for the year)
- Hong Kong’s Hang Seng: (+1.0% for the week/-14.4% for the year)
- China’s Shanghai Composite: (+1.4% for the week/-15.1% for the year)
- India’s Sensex: (+1.7% for the week/+4.4% for the year)
- South Korea’s Kospi: (-3.3% for the week/-24.9% for the year)
- Australia’s S&P/ASX 200: (-0.9% for the week/-5.45% for the year)
The South Korean Won had a year to remember, or to forget.
Source: TC, Bloomberg
From The TradersCommunity News Desk