[MarketING] Will the Momentum of Secondary Battery Stocks Wane?

Mixed Close in Stock Market
KOSPI Slightly Down, KOSDAQ Rises Over 1%

[Image source=Yonhap News]

The KOSPI closed lower after four days, dropping to the 2410 level. Meanwhile, the KOSDAQ rose by over 1%, reaching the 820 level. Since the relative strength of the KOSDAQ compared to the KOSPI this year has been driven by the rise of some large-cap stocks, including secondary battery stocks, opinions suggest that the concentration phenomenon is due for resolution.

KOSDAQ Recovers to 820 Level... Highest This Year

On the 24th, the KOSPI closed at 2414.96, down 9.52 points (0.39%) from the previous day. The KOSDAQ ended the session at 824.11, up 11.92 points (1.47%). The KOSPI showed signs of taking a breather after three consecutive days of gains, while the KOSDAQ, which had closed slightly lower the previous day, resumed its upward momentum to close at its highest level this year.

Individual investors lifted the KOSDAQ to the 820 level. On that day, individuals net bought 340.8 billion KRW in the KOSDAQ market. In contrast, foreigners and institutions net sold 247.5 billion KRW and 100.9 billion KRW, respectively. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The KOSDAQ fell due to increased selling pressure from individuals at the end of the previous session, increasing volatility, but on this day, individual buying returned, leading to a rebound of over 1%. Meanwhile, the KOSPI narrowed its losses in the afternoon as foreign buying flowed in."

The KOSDAQ has shown a better performance than the KOSPI this year, recording relatively higher returns. The KOSPI has risen 7.99% year-to-date, while the KOSDAQ has increased by 21.24% over the same period.

The relative strength of the KOSDAQ is due to the sharp rise of secondary battery stocks, which are among the top market cap stocks on the KOSDAQ. This year, Ecopro surged 342.72%, Ecopro BM rose 152.99%, and L&F increased 54.47%. L&F also gained more than 7% on this day.

However, there are opinions that this strong performance of the KOSDAQ, driven by concentration in certain stocks, will not be sustainable. Kim Young-hwan, a researcher at NH Investment & Securities, said, "A recent characteristic of the stock market is the intensified concentration of demand in certain growth sectors such as secondary batteries. Due to uncertainties in monetary policy and the economy, demand has focused on structural growth and policy beneficiaries. However, short-term concentration in some sectors usually does not last long, and after a certain profit range is reached, it is common to seek alternatives."

Analysis suggests that except for some large-cap stocks within the KOSDAQ, the price performance of small and mid-cap stocks has been sluggish due to this concentration phenomenon. Ahn Young-jin, a researcher at SK Securities, explained, "In the KOSDAQ market, some relatively large stocks are creating outlier index movements. Demand is concentrated on large stocks such as Ecopro and Celltrion, which has been observed. As a result, although the index was slightly up, a significant number of stocks declined, or even when the index rose sharply, the number of declining stocks exceeded the number of advancing stocks." He added, "It is fair to say that except for some large-cap stocks, the small and mid-cap segment of the KOSDAQ is showing a sluggish trend."

Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "The benefits of risk appetite recovery have been concentrated on secondary battery stocks, and the trading volume share of related stocks exceeded 20% of the index. As their influence on the index increased, the divergence rate between the KOSDAQ excluding secondary batteries and the overall KOSDAQ exceeded 6%, indicating that excluding secondary batteries, the KOSDAQ has been sideways since February."

Who Will Lead the Next Rotation?

The concentration phenomenon is unlikely to continue, and profit-taking pressure on the sharply risen secondary battery stocks is increasing, so there is a need to pay attention to the next leading stocks. The KOSDAQ's decline at the end of the previous session was also due to profit-taking mainly in secondary battery stocks.

Researcher Choi said, "Profit-taking pressure on the secondary battery stocks, which have been strong so far, has increased. Considering the fatigue from the rise, there is a possibility of going through a supply digestion phase."

Accordingly, interest in the next leading stocks following secondary batteries is growing. Choi explained, "If secondary batteries falter, the next rotation candidates will emerge. Among the top stocks that saw inflows this week, excluding secondary batteries, sectors such as semiconductors, software (SW), automobiles, healthcare, and hotel & leisure are included. Except for automobiles, which have solid earnings, these sectors have recently underperformed." He sees the IT sector, including semiconductors, as a likely candidate for the next leading stocks. He added, "This is because of expected benefits from government advanced industry promotion policies, announcements of new business plans by large corporations, and the spillover effect from Nvidia. Also, if hints of industry recovery are found in the upcoming Micron earnings announcement next week, rotation could strengthen."

Researcher Kim Young-hwan advised, "Besides secondary batteries, it is necessary to pay attention to sectors where sales growth can occur regardless of the strength of economic improvement, and relatively undervalued sectors with scheduled momentum."