Tuesday, May 24

Korean Stocks Rise on Election Results, Global Risk-Asset Bounce


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(Bloomberg) — South Korean stocks rallied along with global markets after conservative candidate Yoon Suk-yeol won Wednesday’s presidential election with investors optimistic over the new administration’s perceived business-friendly policies.

Nuclear energy, internet and construction stocks were among the biggest winners as the Kospi advanced 2.1%, heading for its biggest one-day gain since December. So-called peace stocks, which typically benefit from improved ties between North and South Korea, were the biggest losers as Yoon is expected to be more hawkish toward the North than was his predecessor Moon Jae-in. The won strengthened as much as 1%.

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“If you see Yoon Suk-yeol’s interviews, he shows great willingness to implement market-friendly policies,” said Hong Chunuk, chief executive officer at Richgo Investment in Seoul. “We can expect the government to play the role of a fair judge. “

The election result also boosted sentiment by ending a period of investor uncertainty caused by the very tight race. The nation’s smaller companies also rallied, with the tech and healthcare-heavy Kosdaq surging as much as 2.6%. The iShares MSCI South Korea ETF jumped 4 % in New York trading, the biggest one-day gain in more than a year.

Read More: South Korea’s Pro-Nuclear President-Elect Boosts Atomic Stocks

Here’s what investors and analysts are saying:

Lower Taxes

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“The People Power Party is more business friendly than the Democratic Party and there could be a move to slightly lower the corporate tax rates,” said Jung Sang-Jin, chief fund manager at Korea Investment Management Co. in Seoul. “If that happens , it would be a boon for the stock market.”

New Policies

“With the new president-elect, conditions are now made for the languishing Korean stock markets to become active again with new policies to be announced,” said An Hyungjin, chief executive officer, Billionfold Asset Management in Seoul.

Less Expansionary

“With the conservative opposition victory, we expect a turn to an incrementally less expansionary fiscal policy combined with relatively less hawkish monetary policy,” Goldman Sachs Group Inc. analysts including Goohoon Kwon in Hong Kong wrote in a note. “The Yoon presidency is also likely to press ahead with pro-business deregulation and housing supply measures. Parliamentary composition dominated by the progressive party could nonetheless limit legislative action until the 2024 general elections.”

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Weaker Won

The conservatives have traditionally tended “to look at the currency through the perspective of companies, thus they’d would prefer a weaker won,” said Ha Keon-hyeong, an economist at Shinhan Investment Corp.. “They also have a tendency to leave flows to market trends, hence traders could expect more volatility in the won as authorities seek less intervention.”

State Firms

Korea Electric Power Corp. and other state-run companies’ stocks are expected to see better performances because “the president’s power is huge for some individual sectors, and those sectors that have seen big regulations — such as utilities and financial — merit attention,” Richgo’s Hong said. Still, “with the opposition party a minority in the current parliament, it could be difficult to carry out the president-elect’s pledges, such as Yoon’s plan to remove capital gains levy on share sales,” he said.

Nuclear Energy

“Construction and nuclear energy sectors, which are on the opposite side of the Moon Jae-in administration’s policies, are expected to benefit the most,” said Yoon Joonwon, a fund manager at DS Asset Management in Seoul. At the same time, “ the annual housing supplies could as much as double from the previous level,” Yoon said.

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