Semiconductors vs Secondary Batteries Leading Stocks in the Second Half... Small and Mid-Cap Stocks More Resilient Than Large Caps

Net Buying Sentiment by Stock... Individuals Favor 'Ichajeonji', Foreigners Favor 'Bandochae'
Mixed Outlook for Ichajeonji but Generally High Upside Potential for Bandochae

The leading sectors attracting attention from the securities industry and investors in the second half of the year are semiconductors and secondary batteries. Amid continuous net buying by individuals and foreigners since July, their investment sentiment is also focused on secondary batteries and semiconductors. However, individuals seem to concentrate more on secondary batteries, while foreigners focus more on semiconductors. Accordingly, the competition in returns between these groups is expected to be a key point to watch. Additionally, due to price burdens on large-cap semiconductor and secondary battery stocks, it is analyzed that the upward trend of small and mid-cap stocks will be stronger for the time being, making the rise rates of both large-cap and small and mid-cap stocks a subject of interest.

Korea Exchange, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

According to the Korea Exchange on the 24th, individual investors have been net buyers centered on secondary batteries this month. The most purchased stock was POSCO Holdings, with nearly 1 trillion won bought. Supported by individual net buying, POSCO Holdings recorded new highs day after day, soaring to an intraday high of 682,000 won, setting a new record. Next, LG Energy Solution (290.2 billion won) and L&F (272.1 billion won) were purchased.

Foreigners bought Samsung Electronics the most, with net purchases amounting to 596.7 billion won. They also bought EcoPro and EcoPro BM worth 552.8 billion won and 469.5 billion won respectively. Samsung Electronics Preferred and SK Hynix were also net bought by 113 billion won and 112.2 billion won, respectively, indicating a semiconductor-focused bet.

Optimism vs. Caution Prevails on Secondary Batteries

The securities industry maintains that semiconductors and secondary batteries will remain the leading sectors in the second half. However, opinions on secondary batteries are somewhat divided. Optimism and caution are at odds. The cautious view holds that since prices have risen significantly in the first half, there is some burden. While growth potential is high, the gap between stock prices and corporate value is widening, suggesting a need for careful approach.

The optimism emphasizes growth potential and momentum. Researcher Anna Lee from Yuanta Securities said, "The reason secondary batteries will inevitably be the leading sector in the second half is that it is the sector with the greatest growth potential and momentum," adding, "The price increase in the second half is expected to be greater than in the first half. While the first half's order momentum was mainly focused on cathode materials, in the second half, many materials including separators will see full-scale contract signings." Jeon Jang-hyun, a researcher at Daishin Securities, also explained, "Orders extending from cells to materials are expected to accelerate," and "Especially for copper foil and separators, local supply shortages in North America will lead to expansion of new capacity based on orders."

Expanding Semiconductor Weight with High Upside Potential... Small and Mid-Cap Stocks Strong

Foreigners appear to be focusing more on semiconductors, which have greater upside potential, rather than secondary batteries, which have already seen large gains. SK Securities researcher Donghee Han said, "The speed of earnings improvement in the semiconductor sector is expected to outpace the recovery speed of the industry, so continuous weight expansion is recommended." Hana Securities researcher Jaeman Lee also noted, "In the 2023 price rise process, it is necessary to pay attention to sectors whose future earnings growth rates are relatively underestimated," pointing out that "semiconductors, chemicals, software, and IT hardware fall into this category." Daishin Securities researcher Kyungmin Lee forecasted, "The KOSPI could rise to the 2800 level in the third quarter after the earnings season, and among existing leading stocks, large caps with improved earnings are expected to continue their strength in the third quarter," adding, "Buying responses centered on semiconductors, automobiles, machinery sectors, and representative stocks are effective."

There are many positive outlooks for Samsung Electronics in the semiconductor sector. KB Securities researcher Dongwon Kim said about Samsung Electronics, "The semiconductor (DS) business division will turn profitable in the fourth quarter for the first time in a year," explaining, "In the second half, the memory semiconductor market's expansion of shipments of high-value new products such as HBM3 and DDR5 will be the key to profitability improvement." NH Investment & Securities researcher Byungyeon Kim also selected semiconductors as a preferred sector for the second half and recommended increasing Samsung Electronics' weighting.

Meanwhile, there is also analysis emphasizing attention to small and mid-cap stocks. Eugene Investment & Securities researcher Jaehwan Heo said, "In the past two months, in the domestic stock market, small and mid-cap companies in materials, parts, and equipment sectors have outperformed large-cap semiconductor or secondary battery stocks," interpreting this as "the leading themes or sectors remain the same, but the style has changed due to price burdens." He added, "With major companies' earnings announcements upcoming, it is difficult for large caps' stock prices to rise significantly in the short term, and small and mid-caps are expected to be more active," and "Interest is shifting to companies within sectors that have risen relatively less or have clearer additional momentum."