Ahead of the General Election, 'Political Network Stocks' Soar... Will Sharp Fluctuations Repeat?

Stocks Related to Minister Han Dong-hoon Surge Consecutively... Wider Planet Invested by Lee Jung-jae Rises 263.9% Over 9 Trading Days
Unusual Movement Ahead of General Election, Not Presidential... Past Political Theme Stocks Show Increased Volatility with Sharp Fluctuations

With the 22nd National Assembly election just four months away, political theme stocks are running rampant in the domestic stock market. As the political circle has accepted Minister of Justice Han Dong-hoon’s candidacy for the general election as a foregone conclusion, related theme stocks have been blazing day after day. Shares such as Daesang Holdings preferred stock and Wider Planet surged sharply after it was revealed that Minister Han dined with actor Lee Jung-jae at a restaurant in Seocho-gu, Seoul.

Market experts analyzed that while the stock market remains sluggish, there is a tendency for capital to concentrate on theme stocks. Considering the past trends of political theme stocks, they expressed concerns that stock price volatility could increase, leading to repeated sharp rises and falls.

According to the Korea Exchange on the 14th, the stock that rose the most in the domestic market this month is Wider Planet, which increased by 263.9% over nine trading days. The stock price jumped from 2,910 won at the end of last month to 10,590 won the day before. It recorded the daily upper limit price five times this month, including a four-day consecutive upper limit streak from the 8th to the 13th.

Earlier, Wider Planet announced on the 8th that it would raise operating funds and debt repayment funds through a third-party allotment rights offering. Actor Lee Jung-jae, along with Jung Woo-sung, Wizwick Studio, and co-CEOs Park Kwan-woo and Park In-gyu of Wizwick Studio, agreed to participate in the capital increase. Wider Planet explained that once the payment for the rights offering is completed on the 20th, the largest shareholder will change to Lee Jung-jae.

News that Mr. Lee, who is known to be an alumnus of Hyundai High School along with Minister Han, invested in the company attracted many individual investors eager to buy Wider Planet shares. After news spread that Mr. Lee, known to be a longtime partner of Lim Se-ryeong, Vice Chairman of Daesang Holdings, had dinner with Minister Han, the prices of Daesang Holdings preferred stock and Daesang Holdings shares fluctuated wildly. Daesang Holdings preferred stock recorded seven consecutive trading days of upper limit price streaks from the 27th of last month to the 6th.

The price of Daesang Holdings preferred stock rose to as high as 59,600 won intraday on the 8th but fell to 41,650 won three days later. The rally was halted as Lim Chang-wook, Honorary Chairman of Daesang Group, sold preferred shares he held.

Wider Planet, in which Mr. Lee directly invests, recorded a buy order balance of 3.95 million shares the day before. Although the stock price surged sharply in a short period, few shareholders are looking to realize profits yet. The trading volume the day before was only 325,000 shares, less than 5% of the 6.91 million listed shares.

A financial investment industry official said, "As Daesang Holdings preferred stock surged, the expected returns on political theme stocks have increased," adding, "It is unusual for political theme stocks to move strongly ahead of a general election rather than a presidential election."

Looking back at the past trends of political theme stock prices, they are difficult to predict. Even in the case of Daesang Holdings preferred stock, the stock price that was soaring suddenly plunged due to the major shareholder’s sale of shares. There have also been cases where stock prices plummeted following a prominent politician’s declaration of non-candidacy.

In 2021, ahead of the 20th presidential election, numerous political theme stocks appeared. NE Neungyule rose 900% in just about three months from March to June 2021. The stock price, which hovered around 3,000 won, surpassed 30,000 won. It was classified as a theme stock because its largest shareholder, Chairman Yoon Ho-jung of HY, shares the same Pyeongyang Yoon family lineage as President Yoon Seok-yeol. Around the same time, the stock prices of Deoksung and Seoyeon also surged because their outside directors were university alumni of President Yoon. Noroo Holdings’ stock price surged after it was revealed that its subsidiary, Noroo Paint, sponsored Covana Contents, which was operated by President Yoon’s wife, Kim Geon-hee.

NE Neungyule’s stock price reached its historical peak at the time but has since declined. The current stock price has fallen to around 5,000 won. Deoksung’s stock price rose to 32,850 won on June 2, 2021, but dropped to 3,375 won by July 26. It is now lower than before it was classified as a President Yoon theme stock. Recently, as it has been mentioned again as a Minister Han theme stock, its price has recovered to around 8,000 won.

The Korea Capital Market Institute published a report analyzing the political theme stock phenomenon during the 20th presidential election in February last year. Senior Researcher Nam Gil-nam analyzed, "The political theme stock phenomenon, which fuels stock price rises based on vague relationships with prominent candidates, was repeated," adding, "Among 83 stocks mentioned as political theme stocks for the two candidates with high poll ratings during the 20th presidential election, 44% were acquaintance themes, the largest portion." He continued, "Most of these relationships were very vague and unrelated directly to the companies’ businesses," and "stock prices fluctuated sharply depending on the poll ratings or political events related to the candidates."

Political theme stocks also appeared during the 18th and 19th presidential elections. Related to the low birthrate issue promised by former President Park Geun-hye during her candidacy, stocks related to childcare products surged. Agabang’s stock price rose from around 2,100 won at the end of 2010 to over 22,000 won in January 2012. The stock price then began to decline and fell below 4,000 won by June 2014.

During the 19th election, a single photo attracted attention. A photo circulated showing one of the executives of women’s clothing brand Daehyun hiking with former President Moon Jae-in. Daehyun was classified as a political theme stock, and its stock price tripled within a month. However, the stock price plunged after it was revealed that the person in the photo was not a Daehyun executive.

As such, political theme stock prices tend to surge temporarily but often return to pre-theme stock levels after the election ends. Daewoo Winia and other Daewoo Winia Group affiliates have recently undergone court management procedures due to worsening management and large-scale wage arrears. Park Young-woo, chairman of Daewoo Winia Group and nephew-in-law of former President Park Geun-hye, is under prosecution investigation for violations including the Labor Standards Act. The group was spotlighted as a theme stock during the 18th presidential election in 2012 and expanded its business through mergers and acquisitions afterward. However, it faced crises such as suspending overseas factory operations due to the COVID-19 pandemic.

It is rare that connections with prominent politicians directly influence business, and even indirect support does not guarantee growth. A financial investment industry official explained, "It is uncertain how long political theme stocks will continue to run rampant," adding, "If stock price volatility increases, it could create many variables in attracting investment."