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Korea Herald
7 days ago
- Business
- Korea Herald
Defense shares lose steam amid rising hopes for Russia-Ukraine truce, overvaluation fears
Shares of South Korean arms makers dropped sharply Friday amid expectations that the upcoming US-Russia summit would include talks on a potential cease-fire in the Russia-Ukraine war. Concerns over valuation also contributed to the decline. Shares of Hanwha Systems, a major defense affiliate of Hanwha Group, stood at 53,200 won ($39) as of 11 a.m., down 6.35 percent from the previous trading day. During intraday trading, the share price of the defense firm with a roughly 10 trillion won market capitalization fell to as low as 52,800 won, marking a near 20,000 won drop from how it stood at the 52-week high of 70,200 won on June 18. Other defense stocks also traded lower, with LIG Nex1 down 14.59 percent, Hanwha Aerospace down 5.15 percent, Hyundai Rotem down 5.29 percent and Korea Aerospace Industries down 3.42 percent. LIG Nex1 shares plunged the day despite being added to the Morgan Stanley Capital International's Korea Index. 'The company is expected to achieve strong profit growth going forward. However, due to the recent sharp rise in the stock price, the short-term upside potential is limited,' analyst Jeong Dong-ho from Mirae Asset Securities said, following the brokerage firm's decision to downgrade the investment rating to neutral. The shares dropped on expectations that US President Donald Trump and Russian President Vladimir Putin could hold a summit as early as next week and possibly discuss truce for the Russia-Ukraine war. The plunge also comes amid concerns on overvaluation. Major defense stocks have surged between 70 percent and 300 percent since the beginning of this year. While the projected price-to-earnings ratio for Lockheed Martin, a top US defense company, for this year stands at 19.6, major domestic defense stocks have been trade at significantly higher multiples, signaling a potential overvaluation. Hanwha Systems posted a PER of 61, LIG Nex1 44.1, Korea Aerospace Industries 37.1, Hanwha Aerospace 32.1, and Hyundai Rotem 23.5, according to the Korea Exchange Thursday. High PER suggests a potential overvaluation compared to industry peers. After a strong buying spree earlier this year, foreign investors have shifted to a net selling stance on defense stocks this month. From Aug. 1 to 7, they offloaded 152.8 billion won worth of Hyundai Rotem shares, 71.2 billion won of Hanwha Aerospace, 65.9 billion won of Hanwha Systems, 49.5 billion won of LIG Nex1, and 3.3 billion won of Korea Aerospace Industries.
Korea Herald
7 days ago
- Business
- Korea Herald
3 companies added to MSCI Korea Index; constituent number unchanged at 81
Morgan Stanley Capital International Inc. has added three new companies, including defense firm LIG Nex1 Co., to its Korea Index, a key gauge of South Korea's stock market, the global index provider announced Friday. The US-based provider of investment research and indices added construction and robotics firm Doosan Co., LIG Nex1 and electric motor maker Hyosung Heavy Industries Corp. while removing the same number of companies from the list, which remains unchanged at 81, according to the company. Those removed are leading food company CJ Cheiljedang Corp., electric components maker LG Innotek Co. and SKC Ltd., a chemical products maker. The rebalancing will take effect Aug. 26. MSCI reviews the Korea Index every three months to reflect changes in the market capitalization of underlying securities. The index is seen as a benchmark of the South Korean market, and changes to its constituents can affect the movements of passive funds tracking the index. Market watchers had expected additions to outnumber exclusions in the August review, considering that the country's stock market has been showing a strong performance compared with its global peers. In February, the MSCI excluded 11 companies from the list while adding none amid weakness in the local stock market. The index provider added two new companies and took out two others in its May review. (Yonhap)
