[The Economics of Heatwaves⑧] 'Jongmokdeul' Heating Up in the Heat

Keywords Benefiting from Heatwave: 'Electricity, Cooling, Renewable Energy'
Attention on Carbon Emission Permits and Agricultural Company Investments

On the 25th, when heatwave warnings were issued for most regions nationwide, heat haze was rising from the ground at the Sejongno intersection in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Hwang Junho] As the heatwave begins, various sectors are gaining attention. Not only the stocks of cooling companies benefiting from the summer boom but also related stocks expected to benefit from the power shortage and renewable energy-related stocks highlighted due to abnormal climate changes are attracting interest.

Heatwave Beneficiary Keywords: 'Power, Cooling, Renewable Energy'

After the rain stopped and the heat arrived on the 1st, a resident in the Changsin-dong gosiwon village in Seoul is beating the heat with a fan. Photo by Moon Honam munonam@

The heatwave beneficiary keywords can be divided into cooling, power, and renewable energy. The primary beneficiaries are companies that perform well against the heat. Thanks to the popularity of circulators following fans and air conditioners, companies like Paseco, Shinil Electronics, and Winia are expected to see expanded earnings this summer. Also, distributors of these products such as Lotte Hi-Mart and E-Mart are considered related stocks.

Among them, Paseco is a window-type air conditioner manufacturer that has expanded into Southeast Asia, including Vietnam and Singapore, and has secured export contracts as far as Chile in South America. Its stock price has shown a 'Samhan Samon' (three cold days, three warm days) pattern since the 10th, when Seoul recorded a daily average high temperature of 35.1 degrees Celsius.

Before the spread of COVID-19, airline and travel stocks heated up first due to people leaving to escape the heat. However, recently, these sectors' stock prices have somewhat declined due to the spread of new variants. Still, expectations for earnings growth from increased passenger traffic remain alive.

Park Sooyoung, a researcher at Hanwha Investment & Securities, stated, "Despite the resurgence of COVID-19 variants, passenger transportation volume is steadily increasing. The recovery of Southeast Asian routes has gained momentum, and Oceania routes are also recovering rapidly." However, the caveat is that despite the recovery in passenger demand after a long time, cargo volume is expected to decrease due to economic slowdown.

Power, Especially Renewable Energy

[Image source=Yonhap News]

Electricity is essential to use various products to beat the heat. This is why it is necessary to pay attention to stocks expected to benefit from increased summer power demand. Companies such as Hyosung Heavy Industries, Hyundai Electric, Daewon Cable, and Daehan Electric Wire, which are electrical equipment manufacturers, are expected to see earnings benefits.

While one might focus narrowly on power demand, broadening the view suggests that renewable energy sectors could also benefit. This year, as prices of hydrocarbon energies like natural gas and coal have risen, the price competitiveness of renewable energy has improved. Especially due to the Russia-Ukraine war, the need for energy security has increased, boosting renewable energy demand in Europe and elsewhere. Despite rising prices of materials used in renewable energy production modules such as polysilicon and wafers for solar power, the increased demand has allowed companies to pass on raw material price shocks sufficiently, maintaining price competitiveness. Accordingly, Hanwha Solutions has cleared long-term losses and succeeded in turning a profit in Q2 this year.

Kang Dongjin, a researcher at Hyundai Motor Securities, said, "While China has mainly driven solar market growth, the future focus is expected to be the U.S. and Europe, which are the main markets for the company. Efforts to build a solar supply chain excluding China will continue in the U.S. market."

Carbon Emission Permits, Growing Demand

[Image source=Yonhap News]

The Russia-Ukraine war continues, and it will take time to complete renewable energy facilities. Given this situation, power generation using natural resources will inevitably continue for the time being. One more area with growing demand is carbon emission permits.

Kim Jeonghyun, head of the ETF Management Center at Shinhan Asset Management, which operates the 'SOL Global Carbon Emission Permits Futures IHS ETF,' stated, "As tensions between Russia and Ukraine escalate and natural gas prices rise, demand for carbon emission permits has also increased."

However, due to recommendations to reduce natural gas consumption in various European countries and concerns about economic slowdown, downward pressure on emission permit prices has increased this month. Regarding this, Kim said, "A sharp price drop does not align with the market's purpose (to induce a rapid transition to renewables by imposing cost pressure on companies through emission permits), so it is more likely to form a trading range rather than a sudden decline."

The fact that the heatwave has come due to global abnormal climate, not only in Korea but worldwide, is also considered an investment point. Geum Jeongseop, head of ETF Marketing at KB Asset Management, which operates the 'KBSTAR Global Agriculture Economy MV ETF' investing in global agricultural companies, said, "The short-term cause of the recent sharp rise in grain prices can be attributed to the Russia-Ukraine war, but the fundamental cause can be seen as abnormal climate due to global warming. Investing in related companies to actively hedge agflation is also a method."