Beneficiary Stocks Hit Record Highs, Underperformers Plunge... Stock Market Divided by Tariff Negotiations

Dramatic Trade Agreement Reached Just Two Days Before Tariff Suspension Ends
Shipbuilding Stocks Surge While Automotive and Steel Stocks Plunge, Marking a Mixed Outcome

As the Korea-US tariff negotiations reached a dramatic conclusion, beneficiaries and underperformers of the trade agreement faced diverging outcomes. Shipbuilding stocks surged to record highs on news of a new cooperation fund with the United States, while automotive and steel pipe stocks weakened as investors were disappointed by the results of the negotiations.

According to the Korea Exchange on August 1, the shipbuilding sector rose by 4.84% the previous day, posting the highest stock price increase among all sectors. NK, a supplier of fire extinguishing equipment for ships, hit the upper price limit and led the rally, followed by Hanwha Ocean (up 13.43%) and HD Hyundai Heavy Industries (up 4.14%), both of which renewed their 52-week highs.

On the previous day, Korea presented the United States with an investment and energy purchase package worth $450 billion (approximately 625 trillion won), succeeding in reducing the reciprocal tariff imposed by the US on Korea from 25% to 15%. Of this amount, $150 billion will be managed as a dedicated cooperation fund to support Korean companies' entry into the US shipbuilding industry, which provided a strong boost to shipbuilding stocks. Since only Korean companies are practically able to acquire US shipyards and conduct business locally, they are expected to benefit directly from this arrangement.

Kim Yongmin, a researcher at Yuanta Securities, commented, "US shipyards, including the Philadelphia Shipyard acquired by Hanwha, are in urgent need of large-scale capital expenditure (CAPEX) due to aging facilities. With support from government policy banks, the modernization of these aging shipyards can be accelerated. This represents a milestone that could significantly advance the timeline for securing ship block construction orders in the defense sector through public-private cooperation."

On the other hand, steel and aluminum, which are subject to high tariffs of up to 50%, were excluded from the negotiations. As a result, steel stocks such as Nexteel (-9.03%), Daedong Steel (-8.84%), and Seah Steel (-8.37%) plunged in succession. Steel pipe stocks also plummeted across the board?Dongyang Steel Pipe (-14.05%), Irem (-12.78%), and Hi Steel (-12.63%)?after the Alaska LNG (liquefied natural gas) development project was not mentioned. Meatbox, a livestock direct transaction platform, also dropped by more than 28% after the additional opening of the beef market, along with rice, failed to materialize.

Hyundai Motor (-4.48%) and Kia (-7.34%) did not benefit despite the reduction of reciprocal tariffs and automotive tariffs from 25% to 15%. The Korean government had argued for a 12.5% tariff on automotive items, but this was ultimately not accepted, leading to investor disappointment and selling. Until the US imposed its automotive tariff hike in May, Korea had enjoyed a 0% tariff under the Korea-US Free Trade Agreement (FTA), while Japan paid a 2.5% tariff. Going forward, a 15% tariff will be applied to Korean car exports to the US, the same as Japan, which could mean Korea loses its relative price competitiveness that it has enjoyed so far.

Nevertheless, the agreement is seen as positive in that it will significantly reduce tariff costs for automotive companies, and the sector’s price-to-earnings ratio (PER) remains about 20% lower than the global average. Kang Sungjin, a researcher at KB Securities, noted, "We expect Hyundai Motor and Kia’s tariff cost burdens to decrease by 2 trillion won and 1.7 trillion won, respectively, in 2025 and 2026. However, for Kia to further reduce its tariff burden, the US needs to lower tariffs on cars produced in Mexico."

Lee Jaeman, a researcher at Hana Securities, said, "The government has stated its intention to actively support the US expansion of the shipbuilding, semiconductor, secondary battery, bio, and energy industries. Within these sectors, it is worth paying attention to companies with a decreased foreign ownership ratio, a high short-selling ratio, and a high earnings growth rate in the second half of the year."