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Politics-themed stocks to rally ahead of April general elections

Industry experts and KRX warn investors of drastic stock fluctuation

Ahead of the April parliamentary elections, politics-themed stocks are already experiencing a roller-coaster ride. While Seoul’s benchmark Kospi has stayed in a box pattern, stocks related to political figures are expected to show more volatility as elections approach.

Related stocks could either surge or dip depending on the candidates’ political moves or performance. Since stock price manipulators take advantage of such stocks, financial authorities have vowed to monitor them closely.


Ahn Cheol-soo delivers a speech after being elected chairman of the defunct People’s Party in February 2016. (Yonhap)
Ahn Cheol-soo delivers a speech after being elected chairman of the defunct People’s Party in February 2016. (Yonhap)


Shares of SM Namsun Aluminum, one of the theme stocks related to Prime Minister Lee Nak-yon, surged 29.96 percent on Nov. 11 on rumors he would return to the parliament in a precursor to his presidential bid. A week from the day, the stock price dropped 29.92 percent, but then started to show an immediate upturn again. His brother Lee Kye-yeon was CEO of SM Samwhan, a local builder under SM Group, before he stepped down in November. The aluminum company is also a subsidiary of the group. While the stock price started slightly rising, it closed at 3,350 won ($2.80) on Friday, up 15 points, or 0.45 percent, from the previous session, according to stock market operator Korea Exchange.

Stock values for Hwashin Tech, an automotive company where Liberty Korea Party Chairman Hwang Kyo-ahn serves as an adviser, dropped Thursday then rose by 250 won, or 4.37 percent the following day -- with the closing price at 5,970 won.


(Yonhap)
(Yonhap)


Stocks related to former presidential contender and co-founder of the minor Bareunmirae Party Ahn Cheol-soo instantly responded to his announcement of returning to the politics Thursday.

Security software provider Ahnlab, which was founded by Ahn in 1995, has shown the greatest fluctuation in stock prices.

On Thursday, the value of Ahnlab soared to 81,000 won, up 15,500 points, or 23.66 percent, from the previous session. The next day it dropped to 76,000 won.

Market experts and individual traders, however, warned that investors in the politics-themed stocks tend to fall victim to drastic drops in share values. Due to their volatility, they warn investors not to invest in those stocks for the long term.

“Data showed that cumulative abnormal return of politics-themed stocks from the 16th to 19th presidential election marked minus earnings rates both before and after the elections -- minus 1.14 percent on five trading days ahead of the election and minus 7.70 percent on five trading days after the big event,” Korea Capital Market Institution’s report showed.

Due to such characteristics, the KRX vowed to regulate excessive investments and warn investors when necessary, while closely monitoring the local stock market’s flow.

“We will do our best to minimize investors’ damage from moral turpitude such as adjusting stock prices, especially with politics-themed stocks ahead of the parliamentary elections and illegal short stock selling,” KRX Chairman Jung Ji-won said at the opening ceremony for the stock market in 2020 on Thursday.

By Jie Ye-eun (yeeun@heraldcorp.com)
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