K-Pop ETF Rises Amid Recovery of Entertainment Stocks

Recent Recovery in Entertainment Stocks Boosts K-Pop ETF Returns
ACE KPOP Focus Up 20%
Reflecting Comeback Expectations of Major Artists like BTS and Blackpink
Significant Improvement Expected in Earnings of Four Major Entertainment Companies Next Year

Recently, as entertainment stocks have shown signs of price recovery, K-pop exchange-traded funds (ETFs) have also recorded favorable returns. The comeback of major artists and the resulting growth expectations for next year have contributed to the revival of entertainment stocks, which had been sluggish throughout this year.

According to the Korea Exchange on the 21st, the ACE KPOP Focus ETF rose 20% this month, marking the third-highest return among all ETFs. The HANARO Fn K-POP & Media ETF also increased by 15.18%.

The strong performance of K-pop ETFs is due to the recovery in entertainment stocks. Despite the market turbulence caused by the 'Trump Storm,' entertainment stocks were considered a sector that could avoid such shocks, showing strength amid the overall market downturn. This month, JYP Ent. rose 32.65%, HYBE 17.25%, YG Entertainment 25.92%, and SM Entertainment 11.57%, with all four major entertainment stocks posting double-digit returns. During the same period, the KOSPI fell 2.89%, and the KOSDAQ dropped 8.09%.

In particular, JYP Ent. gained momentum in its stock price after reporting an earnings surprise in the third quarter. JYP Ent.'s consolidated sales for Q3 increased by 22.1% year-on-year to 170.5 billion KRW, and operating profit rose 10.4% to 48.4 billion KRW, exceeding market expectations. Lee Hwajeong, a researcher at NH Investment & Securities, explained, "They succeeded in a dramatic profitability recovery," adding, "The higher-than-expected average selling price (ASP) of albums was driven by the North American success of Stray Kids' new release, and overall merchandise (MD) sales also surpassed expectations."

This year, entertainment stocks continued to underperform as they were sidelined in the market. Since the beginning of the year, JYP Ent. fell 36.03%, HYBE 6.85%, YG Entertainment 5.50%, and SM Entertainment 14.12%. Shin Jinhae, a researcher at Shinhan Investment Corp., analyzed, "Entertainment stocks have significantly underperformed the market with sharp declines compared to the start of the year," adding, "They did not align with themes that have driven the stock market, such as artificial intelligence (AI) and value-up programs, and continuous noise and ongoing industry downturns have shattered investor sentiment."

However, there are forecasts that the atmosphere will completely change next year. This is because earnings growth is expected to continue with the comeback of major artists. Lim Sujin, a researcher at Daishin Securities, said, "Recently, expectations for next year have gradually been entering the market, leading to a recovery in entertainment stocks' prices," and predicted, "With earnings growth next year, a favorable stock price trend will continue." Lim cited the reasons for anticipated growth in the entertainment industry next year as the full-group comebacks of BTS and BLACKPINK, the monetization timing of new intellectual property (IP), and a rebound in album sales driven by the recovery of fandom competitiveness. Lim added, "The average sales of the four major entertainment companies are expected to grow by 31% year-on-year next year," explaining, "Operating profit is expected to improve significantly with a 93% increase, which is attributed to the base effect of profitability being weak this year due to a higher number of debut groups than usual."

Lim also analyzed, "Two major risks for entertainment stocks have entered a resolution phase," stating, "Issues related to HYBE and ADOR have entered the latter stage, and concerns about industry peak-out triggered by album peak-out have been dispelled by evidence of revenue expansion from concerts and merchandise beyond albums. This is a clear signal of the bottom." He added, "The business environment will improve significantly from the fourth quarter. The base effect will remain favorable until the first half of next year, and active comeback activities of major IPs such as BTS and BLACKPINK are scheduled through 2026."