After Lee Jaemyung's Acquittal, Political Theme Stocks Experience Sharp Swings
Political Theme Stocks Rise and Fall with Political Developments
Even Among Stocks Linked to the Same Politician, Price Movements Differ
The KOSDAQ market, which showed a strong upward trend until last month this year, has turned bearish this month. While leading stocks such as defense industry and shipbuilding stocks, which drove the market rebound at the beginning of the year, have stalled, funds are flowing into political theme stocks. Coupled with the chaotic political situation, volatility in political theme stocks is expected to increase. Market experts advised that rapid price fluctuations may repeat, and that the risk is high when general investors engage in follow-up trading.
According to the financial investment industry on the 31st, Hyungji I&C was the listed company with the highest increase in the domestic stock market over three trading days from the 26th to the 29th. Its stock price rose 79.5% in just three days. Following it, Hyungji Global rose 68.9%, and KD increased by 63.6%.
On the 26th, news of the acquittal in the appeal trial for Lee Jae-myung, leader of the Democratic Party of Korea, on charges of violating the Public Official Election Act, led to a sharp rise in stocks related to Lee in the domestic stock market. Hyungji I&C and Orient Precision rose to the price limit.
The next day, the surge in theme stocks continued. The trading volume of Hyungji I&C reached 11.9 million shares on the 26th, 13.8 million shares on the 27th, and 59.94 million shares on the 28th. This was a 27-fold increase in three days compared to the 2.22 million shares traded on the 25th.
Hyungji I&C, a clothing manufacturer, is an affiliate of Hyungji Elite. Since Lee took office as mayor of Seongnam, he implemented a free school uniform policy, and Hyungji Elite has been classified as a stock related to Lee's policy in the stock market.
Orient Precision joined the theme stocks as Lee was known to have worked at the Orient Watch factory in the past. Orient Precision rose 57% over two days on the 26th and 27th, then plunged more than 10% on the 28th. Other Lee-related theme stocks such as ATEC and Dongshin Construction also closed lower on the 28th.
A financial investment industry official said, "Even within political theme stocks, movements vary by stock," adding, "There is a high risk of principal loss when investing in political theme stocks expecting high returns in a short period."
After the news of Lee's acquittal was announced, Kolon Mobility Group, considered a stock related to Woo Won-shik, Speaker of the National Assembly, fell 37% over three days. During the same period, PN Poongnyeon, one of the theme stocks related to Gyeonggi Province Governor Kim Dong-yeon, also dropped 36.5%. These cases show the risks of investing in political theme stocks.
Political theme stocks also showed increased volatility immediately after the '12·3 Emergency Martial Law' incident. Lee-related and Woo-related stocks surged and then plunged, causing significant losses for many investors. At that time, the Financial Supervisory Service operated a special task force on political theme stocks. Although regulatory authorities continue efforts to eradicate unfair trading, stock price movements that fluctuate according to political developments remain.
The financial investment industry expressed concerns that political theme stocks would become even more rampant as the Constitutional Court's deliberation on President Yoon Seok-yeol's impeachment trial nears its final stage. This is because there are not many leading stocks in the market, and there are several political events that could draw attention to political theme stocks. A financial investment industry official explained, "Despite regulatory crackdowns, stock prices continue to fluctuate sharply," adding, "It is difficult for general investors to predict and profit from the price movements of political theme stocks." He further advised, "Achieving high returns in a short period also means that losses can increase sharply in a short period. Investment in theme stocks should be approached cautiously."
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