Growth Stocks Rise, 'K-New Deal Index' Smiles After a Long Time

[Asia Economy Reporter Minji Lee] As long-term interest rates, which pressured growth stocks in the first half of the year, have entered a stabilization trend, the K-New Deal Index, which includes representative growth stocks that led the stock market last year, is stretching out.

According to the Korea Exchange on the 24th, the 'KRX BBIG K-New Deal Index' rose 7.56% from the beginning of this month to the day before. This significantly outperformed the KOSPI (2%) and KOSDAQ (3.5%) during the same period. The KRX BBIG Index is composed of a total of 12 stocks, three representative companies each from battery, bio, internet, and game (BBIG) sectors expected to lead future growth. The index components include Kakao, NAVER, LG Chem, Samsung Biologics, Samsung SDI, Celltrion, SK Innovation, NCSoft, Netmarble, SK Biopharm, Kakao Games, and Douzone Bizon. As most of the included stocks showed an upward trend, the combined market capitalization of these stocks increased by about 37 trillion won (10%) from 380 trillion won to 418 trillion won in just over a month.

Growth stocks had to cede their leadership position to cyclical stocks starting in March as concerns over rising interest rates due to inflationary pressures intensified. When interest rates rise, the discount rate on future value increases, lowering the valuation of growth potential compared to before. However, as views expanded this month that the inflation surge might be temporary and interest rates stabilized, investor interest in growth stocks appears to have expanded again.

Internet-related stocks showed the best returns. Since the beginning of this month, the 'KRX Internet K-New Deal Index' rose 18.2%, the highest return among thematic indices. Additionally, the 'KRX Secondary Battery K-New Deal Index' and 'KRX Bio K-New Deal Index' rose 7.56% and 4.33%, respectively, while the 'KRX Game K-New Deal Index' fell 1.4%.

The strong rise in internet service companies among growth stocks was due to higher valuations of platform companies. Furthermore, among growth stocks, the relatively low uncertainty regarding earnings also stimulated investor sentiment. Among the included stocks, Kakao and NAVER rallied to new highs this month, rising 33% and 15%, respectively, while AfreecaTV (13%), NHN Korea Cyber Payment (15%), and RSUPPORT (9.8%) also showed upward trends.

However, the continued weakness of game stocks prevented the Game K-New Deal Index from entering a rising phase. Due to ongoing concerns over regulatory risks related to probability-based items in games and the impact of boycott movements, NCSoft, the leading game stock, fell about 4.5% this month alone.