[MarketING] Continued Stock-Specific Market Amid Diverging Supply and Demand

Mixed Close in Stock Market
KOSPI Falls for Second Consecutive Day... KOSDAQ Rises

The domestic stock market closed mixed. While the KOSPI continued a slight decline for the second consecutive day, falling below the 2410 level, the KOSDAQ rose for the second straight day, approaching the 830 mark. The supply and demand dynamics diverged between the two indices. Individual investors showed strong buying momentum, driving the KOSDAQ index higher, whereas the KOSPI lacked clear buying participants and thus showed weakness.

KOSPI and KOSDAQ Show Divergent Trends for Two Consecutive Days

On the 27th, the KOSPI closed at 2409.22, down 5.74 points (0.24%) from the previous session. The KOSDAQ ended the day at 827.69, up 3.58 points (0.43%). Both indices started the day higher but turned lower; however, the KOSDAQ successfully rebounded in the afternoon.

The direction of the two indices was determined by supply and demand. On the Korea Composite Stock Price Index market, foreigners sold a net 103.8 billion KRW, while individuals and institutions bought net 48.2 billion KRW and 65.7 billion KRW, respectively. With no clear dominant buyer, overall supply and demand remained limited. In contrast, on the KOSDAQ market, individual investors actively bought, leading the index's rise. Individuals net purchased 416.4 billion KRW, while foreigners and institutions sold net 305.2 billion KRW and 113.1 billion KRW, respectively. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "Despite selling pressure from foreigners and institutions, individuals defended the market with purchases, maintaining the KOSDAQ's upward trend. Concerns about the financial system resurfaced due to Deutsche Bank's liquidity crisis, reflecting a preference for safe assets, which caused the won-dollar exchange rate to surpass the 1300 level again, showing weakness in the Korean won." On the day, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1301.5 KRW, up 7.2 KRW from the previous trading day.

Amid concerns over financial instability limiting index movements, stock differentiation based on individual issues was observed. While secondary battery stocks showed strength, differentiation was also seen within the sector. L&F surged 10.82%, whereas Ecopro BM and Ecopro fell by around 3% each. Ecopro BM and Ecopro experienced significant declines as foreigners and institutions realized profits and sold shares. Conversely, L&F's stock soared due to the expansion of its main client LG Energy Solution's North American investments and the potential acquisition of new customers. Noh Woo-ho, a researcher at Meritz Securities, commented on L&F, "This year, besides the existing main client LG Energy Solution, there is a high possibility of securing new top-tier clients including Tesla. The order volume based on technological capabilities is expanding, and the visibility of mid- to long-term production capacity upgrades is higher than ever."

LG Energy Solution, which announced plans to expand investments in North America, also showed strength. LG Energy Solution closed at 574,000 KRW, up 0.88%. On the 24th, LG Energy Solution announced it would invest 7.2 trillion KRW to build a new cylindrical and energy storage system (ESS) LFP battery plant in Queen Creek, Arizona, USA. The total production capacity will be 43 GWh, making it the largest global battery production plant located in North America. Cho Hyun-ryeol, a researcher at Samsung Securities, said, "This investment by LG Energy Solution is 4.2 times larger than the previous plan and is considered a strategy reflecting economies of scale and subsidies expected under the Inflation Reduction Act (IRA). According to the currently announced legislation, LG Energy Solution is expected to receive subsidies of 980 billion KRW in 2023, 2.23 trillion KRW in 2024, and up to 7.22 trillion KRW by 2028."

Secondary Battery Stocks Eye IRA Tax Credit Regulations Announcement This Week

As the secondary battery sector's strong performance continues, market attention is focused on how long this momentum can last. Investors are expected to closely watch the detailed guidelines on electric vehicle tax credits under the IRA, which will be announced this week.

The industry hopes that the detailed regulations will closely follow the white paper released at the end of last year, which largely reflected the position of the Korean battery industry. According to the white paper published by the U.S. Treasury Department at the end of last year, the 'battery component requirement' under the IRA's electric vehicle tax credit clause stipulates that from this year, at least 50% (gradually increasing to 100% by 2029) of the total value of electric vehicle battery components must be manufactured or assembled within North America to qualify for a $3,750 tax credit. Additionally, the white paper specifies that at least 40% (increasing to 80% by 2027) of the critical minerals used in batteries must be extracted or processed in the U.S. or countries with which the U.S. has a free trade agreement (FTA) to qualify for the $3,750 tax credit.

Regarding the battery component requirement, the white paper defines battery components as including anode materials, cathode materials, separators, electrolytes, battery cells, and modules, while the constituent materials used to make anode and cathode materials are not considered battery components. This means that the materials for anode and cathode do not have to be produced in North America, which broadens options for Korean companies.

Han Ji-young, a researcher at Kiwoom Securities, said, "The secondary battery sector, which has emerged as a leading and dominant industry domestically, will be influenced by the results of the U.S. IRA detailed guidelines announced during the week. Attention will be focused on whether tax credit relaxations for domestic cathode and anode materials will be included."