Naver, Kakao near new 52-week lows on foreign selloff

[Courtesy of Naver and Kakao]

Naver and Kakao, two major technology stocks popular among individual investors in South Korea, have struggled despite the Kospi index rising over 10 percent in the first half of this year.

According to the Korea Exchange on Monday, Naver shares closed trading at 182,800 won ($140), while Kakao ended at 49,100 won on June 30.

Naver witnessed a drop to as low as 180,600 won during the trading session, putting its position above 180,000 won at risk. Meanwhile, Kakao has been experiencing a stagnant period since its price dropped to the 40,000 won range on June 23. The breach of the 50,000 won mark by Kakao last occurred approximately eight months ago on Nov. 7, 2022.

As growth stocks sensitive to interest rate hikes, Naver initially surged to 232,000 won when the inflation pressure in the U.S. eased at the beginning of the year. However, the stock has experienced a 10.39 percent decline over the past month, erasing the gains made since the start of the year.

Similarly, Kakao reached a high of 71,300 won in early February but dropped to 48,400 won during the trading session on June 30, approaching its 52-week low of 46,500 won set during its network disruption caused by a data center fire last year.

The recent decline in the shares of Naver and Kakao can be attributed to the selling pressure from foreign investors. Foreign investors have been consistently selling shares of Naver since June 19 and Kakao since June 13.

In June alone, net selling of Naver and Kakao by foreign investors amounted to 312 billion won and 183 billion won, respectively. The foreign ownership percentages, which were around 60 percent and 35 percent for Naver and Kakao, respectively, during the peak of the Covid-19 pandemic, have continuously declined. As of June 30, Naver’s foreign ownership stood at 46.84 percent, while Kakao’s was at 25.30 percent, reaching the lowest levels in the past two to three years.

The decline in the stock prices of both companies is interpreted as stemming from concerns about deteriorating performance due to the possibility of an economic slowdown.

Last year, Naver and Kakao experienced significant drops in their stocks due to the Federal Reserve’s rapid interest rate hikes. Growth stocks, which are valued more for their future potential than short-term performance, are more susceptible to higher discount rates on future cash flows during interest rate hikes, leading to greater impact on their stock prices.

If an economic downturn occurs, the revenue earned by both companies from the advertising market could decrease.

“While Kakao is expected to improve its performance in the second quarter and the latter half of this year, significant improvement in performance is contingent on an improvement in the overall economy as most of the advertising revenue comes from display ads,” said Lee Ji-eun, an analyst at Daishin Securities.