Korea’s battery stocks fly high on growing demand

The combined market cap of South Korea’s POSCO Group surpassed 100 trillion won ($7.81 million) for the first time in 24 days, but it is difficult to predict the trend of the stock price. As the stock price surged due to the buying frenzy of individual investors, a short squeeze caused by the liquidation of short sales took place, and money flowed into battery exchange traded funds (ETFs), further fueling the rise in the stock price.

Not only POSCO Group, but also battery-related material companies have been surpassing the target prices of securities firms one after another, which resembles the meme stock craze.

According to financial data tracker FnGuide Inc., the stock prices of major POSCO Group companies such as POSCO Holdings Inc., POSCO Future M Co., and POSCO International Corp. were higher than the highest price targets set by securities firms for each company this month.

POSCO Holdings closed Monday at 642,000 won, higher than the highest price of 540,000 won quoted by Kiwoom Securities Co. for the company so far this month. POSCO Future M’s closing price of 542,000 won is also higher than the highest price quoted by a securities firm at 480,000 won.

“Regardless of performance, all related stocks in batteries are rising at once, making it difficult to analyze individual stocks,” said an official from the financial investment industry. POSCO Future M is currently overvalued with a price-to-earnings ratio (PER) of 161 times, much higher than 87 times of battery stock Ecopro BM Co. and far higher than 67 times of U.S. auto stock Tesla Inc.

The fact that semiconductors and batteries are the only sectors showing future growth is also encouraging the skewed market. “The rise of the battery theme is a result of a surge in net buying by retail investors through leveraged investments,” said Hwang Jun-ho, an analyst at Sangsangin Investment & Securities Co.

While there is a lot of caution about excessive short-term gains, it is also pointed out that the outlook for battery stocks cannot be made based on valuation alone.

In the first half of the year, there were controversies over overvaluation and credit balance of Ecopro Group, but the stocks broke through the all-time high in just over two months. Currently, the ratio of short interest to market cap is high at 2.39 percent for POSCO International and 2.05 percent for POSCO Future M. However, while short interest has played a role in moderating stock prices in the past, the recent short squeeze in battery stocks has led to a sharp rise in stock prices.

Moreover, indirect investments in battery ETFs are also driving up the stock prices. According to the Korea Exchange, the net asset size of domestic battery ETFs was 2.71 trillion won at the beginning of the year, but it has grown to 3.94 trillion won as of Friday due to rising stock prices and inflows of funds.

The number of ETFs listed has also recently increased to 11, nearly doubling from the beginning of the year. In the TIGER Secondary Battery ETF, which has a net asset of 1.4 trillion won, POSCO Holdings and POSCO Future M account for 23 percent.

In the similarly sized KODEX Secondary Battery Industry ETF, POSCO Future M accounts for 17.7 percent, and POSCO Group shares are rising as the demand for secondary battery ETFs increases.