Cars, Semiconductors, Internet... Find the Body-Strong Stocks Leading the Rotation Rally

Hyundai Motor and Kia Lead Auto Stocks at Month-End
From Samsung Electronics and Semiconductors to Kakao and Naver Internet
Rotation Continues Amid KOSPI Stagnation in the 3200s
Next Candidates Sought Amid US Tapering Discussion Concerns

[Asia Economy Reporter Minwoo Lee] As the KOSPI continues to trade within the 3200 range, sectoral rotation is ongoing among industries such as automobiles, semiconductors, and internet. Ahead of the U.S. Federal Open Market Committee (FOMC) meeting, investors are cautious about progress in tapering (reduction of asset purchases) discussions and are looking for the next sector to rotate into.

At around 9:02 a.m. on the 15th, Kakao reached a record high of 144,500 KRW following its 5-for-1 stock split on April 15. When adjusted for the pre-split price, this corresponds to 722,500 KRW. The strong momentum has continued since the previous day. Kakao and NAVER, both leading internet platform stocks, closed up 5.17% and 3.89%, respectively. On this day, Kakao also rose to become the third largest company by market capitalization for the first time ever. This reflects the sector rotation that started at the end of last month shifting to internet platforms.

Earlier, at the end of last month, the automobile sector showed strength. Hyundai Motor and Kia, which had been trading sideways without much rebound since the beginning of the year, surged 5.22% and 4.83%, respectively. Despite challenges such as shortages of automotive semiconductors, rising costs, and a booming used car market, expectations for accumulated demand due to two consecutive years of supply shortages appear to have driven the rally.

At the beginning of this month, investor sentiment shifted toward the semiconductor sector, including Samsung Electronics and SK Hynix. Samsung Electronics, which had been relatively stagnant, rose 2.48% on the 3rd alone, reaching the 83,000 KRW level for the first time in a month. SK Hynix also climbed 2.38%, approaching the 130,000 KRW threshold. A week later, on the 10th, the rotation moved to the bio sector. Samsung Biologics and Celltrion closed up 2.52% and 1.53%, respectively. Notably, Samsung Biologics’ stock, which had been declining since mid-last month, rose more than 2.5% in about a month.

Seosangyoung, a researcher at Mirae Asset Securities, explained, "With the expansion of COVID-19 vaccinations leading to economic normalization and rising inflationary pressures, market participants have shown sensitive reactions to stock and sector-specific issues amid a cautious stance. This explains the rapid rotation between value and growth stocks, financial and technology sectors, as well as optimism and pessimism."

The market is on high alert to identify the next sector for rotation. Some analysts suggest that domestic consumption-related stocks could attract attention due to economic normalization. Among the top sectors by 12-month forward earnings per share (EPS) growth rate are hotels, cosmetics and apparel, and food and beverages. Jaeseon Lee, a researcher at Hana Financial Investment, noted, "According to regional Federal Reserve surveys, service companies’ sentiment has been relatively better than manufacturing since April. In South Korea, the COVID-19 vaccination rate surpassed 22% last week, showing a steep upward trend. With the likely announcement of eased social distancing measures next month, expectations for domestic economic revitalization are gradually increasing."

There are also forecasts for renewed momentum in the semiconductor and IT hardware sectors. This month, DRAM spot prices have steadily risen, and expectations for increased smartphone sales due to China’s ‘618 Shopping Festival’ are growing. The 618 Shopping Festival is a large-scale online event often called the ‘second Singles’ Day.’ Additionally, changes in lifestyle due to COVID-19 have expanded the cloud ecosystem, which is expected to increase demand for server semiconductors. Wonsik Lee, a researcher at Korea Investment & Securities, emphasized, "Growth in the cloud market will lead to increased sales for server companies in the second half of the year, dispelling concerns about weak server demand. It is a time to focus on upcoming positive factors rather than past negative ones."