Political Theme Stocks on Fire Stir Despite 'No Relation' Disclosure

Hong Jung-wook and Ahn Cheol-soo Themed Stocks Surge Rapidly

[Asia Economy Reporter Oh Ju-yeon] Even as the domestic stock market in 2020 reached an all-time high and made new history, political theme stocks fluctuated in some quarters. Political theme stocks are grouped as related stocks solely based on personal connections with politicians, regardless of the company's business, resulting in high volatility. As stock prices soar and plunge, investors face increased risk of losses, and company value can be damaged. However, those seeking immediate profits through short-term trading still flock to political theme stocks like moths to a flame, despite disclosures stating they are "unrelated" to the politicians in question.

According to the Korea Exchange on the 31st, related stocks surged en masse on the 29th following rumors that former Grand National Party lawmaker Hong Jung-wook would return to politics. When Hong posted on his blog on the 28th a message stating, "The conditions of a leader are determined not by the individual but by the era," some investors interpreted this as a political comeback and rushed to stocks they believed were connected to him, driving up their prices. Representative examples include KNN, Samhwa Networks, Korea Industry, and Korea Flange Industry. Some of these stocks hit the daily upper limit, but most have no business ties to Hong Jung-wook.

KNN was classified as a Hong Jung-wook theme stock because when Busan Global Village was established in 2009, it invested 50% of the funds together with Herald, and in 2012, Hong Seong-ah, Hong Jung-wook's sister, became the company's CEO, leading to repeated classification as a Hong Jung-wook theme stock. However, according to disclosures, Hong stepped down as CEO on March 31. Although the connection was severed from March, in August, a single post by Hong sparked political comeback rumors, causing the stock price to soar from the 1,600 won range to 3,015 won. This time, after rising 17.58% on the 29th, it closed up 0.4% on the 30th.

The reason Samhwa Networks was grouped as a Hong Jung-wook theme stock is even more far-fetched. Because Kim Soo-hyun, a writer at Samhwa Networks, a broadcasting program outsourcing company, is said to have a personal connection with Hong's father, Nam Gung-won, the stock hit the daily upper limit on the 29th and rose as much as 21% intraday on the 30th.

Political theme stocks also surged one after another in relation to Ahn Cheol-soo, leader of the People’s Party, who recently declared his candidacy for the Seoul mayoral by-election.

Ahn's company, AhnLab, where he is the largest shareholder (18.6%), saw its stock price rise 19.44% from 63,800 won on the 18th to 76,200 won on the 30th. Despite announcing solid third-quarter operating results in November, AhnLab's stock price had been stagnant. Its operating profit for Q3 this year was 5.754 billion won, a 7.3% increase year-on-year, but the stock hovered in the 60,000 won range from August to early December. The stock price, which had been suppressed despite good results, jumped on news of Ahn's candidacy.

Sunny Electronics was linked as a theme stock because a former executive is from AhnLab, and Camu E&C was connected because an outside director is said to have a personal relationship with Ahn. Both stocks rose but disclosed that they have "no business relation with former leader Ahn Cheol-soo." Camu E&C explained, "Outside director Pyo Hak-gil served as the standing representative of the support group 'Experts' Plaza with the People' for Ahn Cheol-soo during the 2017 presidential election, but currently there is no relationship."

Previously, most stocks related to former lawmaker Hong were grouped as theme stocks solely based on personal connections without business ties. This makes them vulnerable to sharp price drops and raises concerns about losses for investors who entered late. It can also be detrimental to companies as they do not receive fair valuation.

On the 30th, Korea Industry and Korea Flange Industry issued disclosures stating they have "no business relation with Hong Jung-wook." Korea Industry explained, "Our internal director Shin Sung-soo and former lawmaker Hong each serve as standing advisor and director of the National Museum Association, respectively, but past and present Chairman Hong has no business-related matters with the company." Korea Flange Industry also stated, "The company has no personal relationship with former lawmaker Hong."

Nevertheless, despite these disclosures, investors flocked like moths to a flame, and the rise continued for two consecutive days. Korea Flange Industry rose 29.85% on the 29th and closed up 3.53% on the 30th, while Korea Industry rose 21.31% and 0.10% during the same period.