[Top 10 Groups Market Cap] The More Economically Sensitive the Industry, the Smaller the Decline... Bleak Outlook for the Second Half

Semiconductor Demand Contraction Hits Hard
SK Hynix and Samsung Electronics Plummet
Inflation and Reduced Consumer Spending Power
Emart Also Loses 1.4 Trillion Won
Hyundai Motor Shows Solid Global Performance
LG and Hyundai Heavy Industries See Growth
Complex Crisis Continues with Semiconductor Uncertainty and Ukraine War, Breakthrough Needed

[Asia Economy Reporters Hyunseok Yoo and Donghoon Jung] A detailed look at the changes in the market capitalization of the top 10 conglomerates reveals that the more sensitive the industry is to economic cycles, the larger the decline in market value. This indicates that growing concerns over a global economic recession have negatively affected perceptions of these companies. With the worldwide ‘three highs’?high inflation, high exchange rates, and high interest rates?combined with the resurgence of COVID-19 and increasing fears of an economic downturn, the outlook for the second half of the year remains bleak. As sales decline and profits are threatened, companies are expected to face significant challenges in finding breakthroughs.

◆ The greater the demand contraction concerns, the larger the market cap decline = On the 20th, Asia Economy requested an analysis of the market capitalization of the top 10 conglomerates from financial information provider FnGuide. The results showed that conglomerates with industries expected to experience demand contraction due to the economic downturn saw larger decreases in market capitalization.

Among the top 10 groups, SK Group showed the largest decrease of -26.44% from December 31 last year to the 15th of this month, with SK Hynix alone losing 24 trillion KRW in market value. Samsung Group’s performance was also gloomy. Samsung Group’s market cap fell 19.84%, from 729.8449 trillion KRW to 585.0087 trillion KRW. Although the percentage drop was less than SK Group’s, the absolute amount lost was about 140 trillion KRW. Among this, Samsung Electronics’ market cap dropped from 526.0235 trillion KRW to 403.1989 trillion KRW, a loss of over 120 trillion KRW.

The common factor for these companies is semiconductors. The semiconductor industry is currently facing concerns over demand contraction due to the economic downturn. SK Hynix recently demonstrated this uncertainty by deciding to halt expansion of its Cheongju plant.

Shinsegae Group’s market cap shrank by more than 2 trillion KRW, largely due to the significant impact on its large-scale retailer, Emart. Emart’s market cap fell from 4.2092 trillion KRW to 2.8294 trillion KRW during the same period, a decrease of 1.4 trillion KRW. This is attributed to global inflation and reduced consumer spending power.

For POSCO Group, POSCO Holdings underperformed. The group’s market cap declined from 39.5103 trillion KRW to 31.4010 trillion KRW, a drop of 8 trillion KRW. POSCO Holdings alone fell from 23.9328 trillion KRW to 19.5299 trillion KRW, a decrease of over 4 trillion KRW. This is believed to be due to concerns over demand contraction in the steel sector, which accounts for the largest portion of POSCO Holdings’ business.

Hyundai Motor Group’s market cap decline rate was 10.81%, which is relatively better than the overall top 10 groups’ average decline of -12.65%. Hyundai Motor’s market cap decreased by about 6 trillion KRW, from 50.9674 trillion KRW to 44.8589 trillion KRW, while Kia’s market cap fell by only 1.3 trillion KRW, from 33.3209 trillion KRW to 32.0642 trillion KRW. Despite concerns over the supply of automotive semiconductors, these companies are expanding their market share globally. Particularly in the electric vehicle sector, considered the future of automobiles, they are showing strong performance. According to energy market research firm SNE Research, Hyundai and Kia ranked 5th globally in electric vehicle sales in the first half of this year with 248,000 units sold.

On the other hand, some conglomerates saw an increase in market capitalization. LG Group’s market cap reached 93.6 trillion KRW as of the 15th, boosted by the listing effect of LG Energy Solution. Hyundai Heavy Industries Group also saw a 2.17% increase, from 25.3379 trillion KRW to 25.8869 trillion KRW. Hyundai Heavy Industries’ market cap rose from 8.4512 trillion KRW to 10.1201 trillion KRW, an increase of about 2 trillion KRW. Hyundai Mipo Dockyard also increased from 2.7960 trillion KRW to 3.1754 trillion KRW, about 400 billion KRW more. These companies have benefited recently from rising demand for eco-friendly energy and the Russia-Ukraine war.

◆ Gloomy outlook for the second half amid complex crises = Except for some industries, the outlook for the second half remains bleak. There are no signs of a rebound strong enough to lift the stock prices of major groups. The unprecedented complex economic crisis of high inflation, high exchange rates, and high interest rates continues, rapidly freezing the global economy. The outlook for the semiconductor industry, which is highly sensitive to economic conditions, is uncertain.

The global DRAM market, which entered a full-scale decline in the second half of last year, is expected to continue falling for some time due to the prolonged Russia-Ukraine war, inflation, and slowing demand from China’s economic slowdown. Steel prices have recently dropped, raising further concerns about demand contraction. According to Korea Resource Information Service, iron ore prices rose from $89 per ton in November last year to $159 per ton in April this year but have since fallen to around $104 per ton. The automotive sector is still experiencing delivery delays, but demand could decline at any time due to the economic downturn.

In particular, the depreciation of the Korean won has caused import prices, including raw materials, to rise sharply, leading domestic companies to cut back on investment plans and employment. A business insider said, “Stock prices do not fully reflect or represent corporate management conditions or industry trends,” but added, “Concerns about a global economic recession are clear, and companies must devise self-help measures amid the crisis.”