Korean big-tech names sustained by retail buying amid institutional selloff

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Korean big-tech names Naver and Kako hammered by institutional profit-taking amid heightened risk aversion mood from monetary tightening trend on top of confidence issue are sustained by retail bargain-hunting, but may endure further beating unless they can convince investors with sustainable business vision, analysts say.

Naver and Kakao's stock prices plunged 9.64 percent and 16.53 percent, respectively, in the first two weeks into the new year.

Foreign and institutional investors dumped their shares amid growing concerns over interest rate hikes, anticipation for disappointed figures in fourth quarter earnings and regulatory uncertainty.

The two stocks made retail favorite, with individual investors net buying 726 billion won ($686 million) and 1.12.6 trillion won worth of Naver and Kakao shares, respectively, over the last two weeks.

The platform bellwethers became the primary target for institutional profit-taking after their strong performance last year amid expectations for speedier tightening roadmap in the U.S.

Growth stocks like technology stocks enjoy a rally reflecting the rosy outlook in a low interest rate environment, but with high interest rates, which mean high discount rates, their future earnings value could become impaired.

In addition, concerns over their deteriorated earnings in the fourth quarter of last year and the country¡¯s regulatory issues for online platforms have been weighing on their stocks.

Naver's fourth-quarter earnings are estimated to have missed the market consensus due to increased labor and marketing expenses, according to Kim So-hye, a researcher at Hanwha Investment & Securities. Kakao's sales grew rapidly in the fourth quarter, but operating profit is also estimated to have fallen short of the consensus due to large-scale increases in incentives and labor costs, she added.

Market analysts expect Naver and Kakao stocks could rebound after Korea¡¯s presidential election in late March, which could ease regulatory uncertainty, as well as changes in the management team following moral hazard issues.

DB Financial Investment lowered its target price of Kakao from 170,000 won to 150,000 won last Friday after Ryu Young-joon, CEO of Kakao Pay, sparked controversy over the exercise of Kakao Pay stock options just a month after its initial public offering. Kakao Pay that joined the Kospi in November lost 18 percent so far this year and over 20 percent from its IPO price.

Naver shares remained flat at 342,000 won in early trading on Monday, while Kakao declined 1.60 percent to 92,400 won.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]