Cyclical stocks have further room for upward trend
By Anna J. Park
With the rising trend in bond rates and inflation expectations, investors are quick to readjust their portfolios towards more cyclical stocks, particularly steel, energy and bank stocks, while they reduce the proportion of growth-driven tech stocks with high multiples.
In February alone, steel stock prices enjoyed the highest increases among other sectors on the Korean stock market. Being a traditionally cyclical stock ― stock items that follow business cycles and expand during economic boom periods ― KRX Steel index (KRX STL) comprised of 10 local steel industry stocks saw a hike of 9.87 percent last month. This increase is even more notable when considering the nation's benchmark KOSPI index rose by only 1.23 percent during the same month.
POSCO, Korea's largest and the world's fourth-largest steelmaker, soared by 14.66 percent in February. Companies producing steel-related materials, such as SeAH Besteel and KIS Wire, also logged price jumps of 20 percent and 17.02 percent, respectively.
"Inflation expectations and interest rate increases are typical business recovery signals that are also positive to the outlook of the steel business," said Byun Jong-man, an analyst at NH Investment & Securities.
Stock prices of businesses specialized in non-ferrous industrial metals also soared in February. For instance, copper material producer and exporter Poongsan and non-ferrous metal smelter Young Poong recorded respective monthly increases of 28.42 percent and 20.16 percent last month.
Another sector that has been enjoying the upward ride is the banking industry. The KRX Banks index, which consists of the nation's financial groups and banking companies, surged by 9.5 percent last month. The banking sector enjoys upturns when interest rates rise, as their net interest margin (NIM) increases.
Specifically, Hana Financial Group, JB Financial Group and DGB Financial Group all saw a two-digit monthly growth in their prices: Hana Financial at 13.48 percent, followed by JB Financial at 12.55 percent and DGB Financial at 10.99 percent. Other bank stocks logged an upward trend during the same period, with Woori Financial Group at 8.86 percent, KB Financial Group at 8.68 percent and Shinhan Financial Group at 7.5 percent.
Other sectors like transportation, insurance and construction as well as broadcasting and media also rebounded recently. Exchange-traded funds (ETFs) related to tourism, leisure activities, raw materials as well as traditional energy sources like oil also rose during the past month.
The National Pension Service (NPS), Korea's largest institutional investor that operates about 840 trillion won ($750 billion), also net-purchased S-oil stocks worth 125 billion won last month. The pension fund's net-purchase of the petroleum and refinery company is particularly noteworthy, given that the NPS has been on its longest selling spree of local stocks to meet the institution's asset allocation guidelines.
Meanwhile, sectors that led the KOSPI rally at the beginning of this year, such as cars and IT, turned bearish in February. The KRX vehicle index (KRXAUTO) jumped by 21 percent in January, yet it logged a 2.04 percent fall last month.