ETFs that track business groups benefit from stock rally of Kia, LG Electronics

2023.03.16 11:17:01 | 2023.03.16 11:18:00

Kia logo [Courtesy of Kia]이미지 확대

Kia logo [Courtesy of Kia]

Exchange traded funds (ETFs) that track business groups are delivering high returns on the back of a surge in the stock prices of flagship companies under South Korea’s Hyundai Motor Group and LG Group this year.

According to the Korea Exchange on Wednesday, the “TIGER Hyundai Motor Group + Fundamental” ETF gained 13.04 percent this year while the “TIGER LG Group + Fundamental” ETF rose 10.93 percent. The ETFs track the MKF Index, which has been developed jointly by Maeil Business Newspaper and financial information provider FnGuide.

The returns on Hyundai Motor Group and LG Group ETFs outperformed the Kospi index of 6.41 percent during the same period. On March 14, in particular, the indexes delivered better returns compared with the S&P 500 (2.08 percent) and Nasdaq Composite index (9.19 percent).

The surge in the ETFs comes as the shares of blue chip stocks in their portfolios have risen significantly.

According to Mirae Asset Management Co., Kia Corp. and Hyundai Motor Co. were the two biggest holdings in the TIGER Hyundai Group + Fundamental ETF as of March 14. Kia’s stock price, which rose by more than 4 percent on March 15, surged by 34.23 percent this year, while Hyundai Motor’s stock price increased by 15.43 percent during the same period. Despite a decline in the stock prices of some companies such as Hyundai Glovis Co. in the portfolio this year, the ETF benefited from the diversification and hedging effects provided by the major stocks.

The ETF allows investors to simultaneously invest in domestic car value chain stocks such as Hyundai Motor and Kia. The top market cap stocks in the ETF are well-positioned to defend their stock prices in a bearish market, said an unnamed official from Mirae Asset Management.

Kia’s stock price has risen sharply because analysts are raising their expectations for an earnings improvement after supply chain disruptions in automotive semiconductors are resolved. DB Financial Investment Co. projects that Kia’s first-quarter sales and operating income will rise 20 percent and 25 percent on year, respectively, despite recessionary concerns.

Meritz Securities Co. also raised its projection for Kia’s operating profit this year by 9 percent from its previous estimate, especially as increased wholesale sales will keep incentives low and improve profitability. In February, Hyundai Motor Group’s global wholesale sales outside of China increased 11.4 percent on year.

[Photo by Han Joo-hyung]이미지 확대

[Photo by Han Joo-hyung]

In the LG Group ETF, LG Chem Ltd. and LG Electronics Inc. are leading the way with favorable ETF returns. The largest holding in the TIGER LG Group + Fundamental ETF is LG Chem, whose stock price gained 20.17 percent this year. Shares of the second-largest holding, LG Electronics, were up 35.72 percent. LG Electronics gained 5 percent on Wednesday.

Investor sentiment improved for LG Electronics as it has been categorized as a robotics theme stock. The company is expected to accelerate the expansion of growth businesses such as robotics, artificial intelligence, and smart factories to revitalize new business for its 5G specialized network. According to KB Securities Co., LG Electronics’ operating profit for the first quarter of this year is expected to reach 1.3 trillion won ($991 million), surpassing market estimates by 30 percent.

LG Chem stays ahead of the fierce competition in the chemical industry by strengthening new growth engines.

“LG Chem is turning the crisis from chemical industry competition into an opportunity by expanding new businesses and increasing the proportion of high-value-added products,” said Yoon Yong-sik, an analyst at Hanwha Investment & Securities Co. “The growth of its secondary battery materials business is also favorable.”

By Cha Chang-hee and Minu Kim

[ⓒ Pulse by Maeil Business Newspaper &, All rights reserved]