As Korea's snap election approaches, here are stock strategies to consider

Ahead of a rocky ride expected for potential investors, here are a list of investment choices by experts.

Investment graphic [GETTY IMAGES BANK]

As the candidate steps into a traditional market, supporters chant their name enthusiastically. The candidate shakes hands with vendors and asks, “Business has been tough lately, hasn’t it?” One merchant offers the candidate a piping hot mung bean pancake. The candidate gives a thumbs-up and declares, “I will revive domestic demand and restore the people’s economy.”

Change the candidate and tweak the menu, then this is a scene news readers will see every election season in Korea.

Amid ongoing domestic and international crises — from U.S.-led tariff shocks to structural long-term stagnation — reviving domestic demand has become one of the most urgent tasks for the next administration.

“To revive domestic demand, consumer sentiment is key," said Choi Jun-cheol, CEO of VIP Asset Management. "If no one is spending, everyone holds back. But if people start talking about going on trips, that mindset starts to ease.”

“The real issue is how much the new government can alleviate uncertainty about the future and thaw frozen consumer sentiment," added Choi.

Dollar bills stacked at a Hana Bank branch in central Seoul on April 25 [NEWS1]

Traditionally, domestic consumption stocks are considered defensive and relatively insensitive to economic fluctuations, unlike export stocks. However, in today’s market, where consumer sentiment is deeply suppressed, they too have taken a hit.

Analysts predict that after the election, additional supplementary budgets aimed at boosting domestic demand could benefit companies in related sectors. The National Assembly passed a 13.8 trillion won ($9.9 billion) supplementary budget on May 1, and the ruling Democratic Party is already pushing for a second round.

“Historically, after a presidential election and supplementary budget, the stock market reflects expectations for the new government’s policies and efforts to stimulate domestic demand,” said Park You-an, an analyst at KB Securities.

Ahead of a rocky ride expected for potential investors, here are a list of investment choices by experts.

The usuals: Retail, beauty, food

While the core of domestic recovery lies in boosting spending by Koreans, an additional benefit could come from increasing foreign tourist arrivals.

Retail and food and beverage industries, which are most frequently encountered by consumers in daily life, are often seen as barometers for domestic economic trends.

“Creating consumer sentiment within the country is a long-term strategy," said VIP Asset's Choi. "But for short-term results, the government must act while the opportunity is ripe. As K-culture reaches new global heights, attracting foreigners to the areas they find most appealing could offer added value.”

Kim Hye-mi, an analyst at Sangsangin Investment & Securities, expects overall consumer sentiment to improve post-election, forecasting earnings growth for Hyundai Department Store, Emart, and Lotte Chilsung.

“Hyundai Department Store has a stable VIP clientele and potential for further rebound as sentiment improves, while Emart has increased efficiency through cost control and restructuring, and is strengthening its offline presence,” she said.

In food and beverages, Kim expects a turnaround at Lotte Chilsung despite ongoing challenges from weak domestic sales.

The beauty and cosmetics sector, bolstered by the global expansion of K-beauty, has been relatively resilient during the downturn and is expected to grow further with economic recovery.

Park Eun-jeong, an analyst at Hana Securities, pointed to indie K-beauty brands gaining attention in the United States, Europe and the Middle East, and highlighted original design manufacturing firms like Cosmax and Korea Kolmar.

“The government is supporting K-beauty exporters through policy funding to enhance brand competitiveness, offering additional momentum beyond domestic recovery,” Park said.

The Korean media industry, a pillar of K-culture, also stands to gain. Entertainment agencies such as HYBE, SM Entertainment and JYP Entertainment have sustained revenue growth through booming album sales and online concerts during the pandemic. The prospect of reentering the Chinese market is another positive sign.

“The mood between Korea and China seems to be thawing," said Choi. "For entertainment companies, it’s a chance to tap into a previously closed market with lower tariff risks. Through K-culture, a ripple effect could benefit the tourism, duty-free, beauty and F&B sectors.”

“Comebacks by major artists like Blackpink and BTS are slated for the second half of the year, along with pop-up stores for artist merchandise," said Ji In-hae, an analyst at Shinhan Investment. "But for significant growth in the media sector, the Chinese market must reopen, especially amid falling TV ad revenue and rising production costs.”

Can we fix it? Yes we can: Construction and infrastructure

When private consumption and investment are at a low, governments have traditionally turned to construction investment to stimulate the economy.

According to KB Securities, during the month prior to the inauguration of the last four presidents — Lee Myung-bak, Park Geun-hye, Moon Jae-in and Yoon Suk Yeol — the average stock return for construction and architectural firms was a minus 9.29 percent, but rebounded to 4.17 percent in the month following each inauguration.

Major candidates have proposed infrastructure plans, including Lee Jae-myung’s pledge to complete the administrative capital in Sejong, and Kim Moon-soo’s proposal to expand the Great Train Express network to five metropolitan areas nationwide.

However, experts caution against reading too much into these promises.

“We need to see specific infrastructure policy directions from the new government. Benefits are unlikely to be concentrated in particular firms,” said Park Se-ra of Shinyoung Securities.

“From next year, apartment supply in Seoul will drop by half, potentially destabilizing the rental market in the second half. The new administration is likely to focus on increasing housing supply to address this, which could ease pressure on construction and building material firms. If the government expands social overhead capital [SOC] projects, mid-tier builders outside the top 30 may benefit.”

ETF options for uncertain investors

For investors hesitant about individual stocks, exchange-traded funds (ETFs) focused on domestic demand offer a viable alternative.

Two notable options are KB Asset Management’s “RISE Domestic Consumption Stock Plus” (translated) and Samsung Asset Management’s “KODEX Consumer Staples.”

As of May 16, the RISE fund posted a one-month pre-tax return — assuming reinvested dividends — of 6.76 percent, while KODEX Essential Consumer Goods delivered 9.9 percent.

Both ETFs had their largest holdings in KT&G (8.24 percent for RISE and 22.34 percent for KODEX). RISE also includes KT, Kepco, LG Electronics, and SK Telecom. KODEX includes Samyang Foods, Amorepacific, LG Household & Health Care, and APR.

“Compared to defense or shipbuilding stocks, domestic demand stocks have greater upside potential and utility companies are expected to show earnings improvements," said Kim Dong-hwan, portfolio manager at KB.

Samsung’s Lee Dae-hwan said, “In times of high market uncertainty and economic slowdown, these stocks serve a defensive role.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff. BY KO SUK-HYUN [yoon.soyeon@joongang.co.kr]