LG Innotek, Daeduck Electronics and Other Electric/Electronic Component Stocks in Focus
Dividend Stocks Like Banks Also Present Investment Opportunities Amid Continued Uncertainty
[Asia Economy Reporters Ji Yeon-jin and Lee Min-woo] The emergence of the new COVID-19 variant Omicron is increasing uncertainty in the stock market. The financial investment industry suggests that since this fear has already been experienced during the early stages of COVID-19 and the emergence of the Delta variant, attention should be paid to component stocks in the electrical and electronics sector, which are expected to show strong performance. Additionally, it is advised to focus on industries with clear investment points such as short-term dividends.
According to the Korea Exchange on the 29th, LG Innotek rose 2.3% last week despite the KOSPI falling 1.2%. This is due to the strong sales of Apple’s iPhone 13 and the expected improvement in the next-generation camera performance, increasing the likelihood of upward revisions in earnings.
In fact, Apple’s iPhone 13 series is performing well. According to market research firm Counterpoint Research, iPhone 13 sales in the U.S. over six weeks were 14% higher than those of the iPhone 12 during the same period. Particularly, it is also achieving strong results in China. In October this year, Apple’s market share in the Chinese smartphone market was 22%, ranking first. This is the first time Apple has ranked first in China since December 2015, about six years ago. Major competitors, excluding Apple, actually saw sales decline compared to the previous month. Kim Rok-ho, a researcher at Hana Financial Investment, explained, “The global smartphone sales for October will be announced around the 28th, and it is necessary to compare the sales volume of the iPhone 13, which is expected to perform well, with its predecessor.”
Small and medium-sized package substrate companies also outperformed the market last week. BH and Daeduck Electronics saw their KOSDAQ returns fall only 0.5%, compared to the market return of -3.5%. Researcher Kim emphasized, “Due to the Omicron variant of COVID-19, preference for companies with strong performance is bound to increase. Attention should be paid to the trend of ceramic capacitors related to package substrates in the export results of Korea for November, which will be finalized on the 1st of next month.”
Some advise using the correction in dividend stocks caused by Omicron fears as a buying opportunity. Typically, dividend stocks see active buying toward the end of the year as dividend expectations rise, but this year they have been less popular amid a sideways market. However, as uncertainty is expected to continue due to the spread of Omicron, it is recommended to focus on sectors with short-term dividends.
On the morning of the same day, most bank stocks, considered representative dividend stocks such as KB Financial (-1.6%), Shinhan Financial Group (-2.18%), and Hana Financial Group (-2.04%), showed weakness. They fell more than the KOSPI’s decline of around 0.5%. Last week, when the Bank of Korea raised the base interest rate, bank stocks’ returns over five trading days were -1.5%, worse than the KOSPI’s -1.2%. Concerns over Omicron’s spread caused macro indicators such as interest rates and oil prices to plunge and the Korean won to weaken, worsening economic slowdown fears and weighing on bank stocks. Bank stocks typically benefit from rising interest rates as their profits increase, and they had been on an upward trend this year. However, with renewed lockdowns due to Omicron and the possibility of the U.S. delaying interest rate hikes, concerns about economic slowdown have reduced the attractiveness of bank stock investments.
However, if uncertainty continues, bank stocks could become an investment opportunity. Choi Jung-wook, a researcher at Hana Financial Investment, said, “Omicron uncertainty is a factor that can affect not only bank stocks but the entire market. If uncertainty continues, it is highly likely that attention will be paid to sectors with clear investment points such as short-term dividends from a relative perspective. Bank stocks had smaller gains even during the COVID recovery period, so they are a comfortable sector in terms of valuation.” Currently, the average expected dividend yield of banks is 5.9%, and the year-end dividend alone, excluding interim dividends, amounts to 4.7%. In particular, BNK, DGB, JB, and Industrial Bank of Korea are expected to have year-end dividend yields exceeding 6%. Researcher Choi added, “The year-end rally for bank stocks has not appeared yet this year, but December can be anticipated.”
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