Taking stock of Park government

With the arrival of the Park Geun-hye administration, analysts at brokerage firms have advised investors to keep their eyes on shares of companies related to the new government’s five administrative goals and 140 policy tasks as officials tend to aggressively pursue objectives in days after taking office.

Analysts cited Park’s plans to nurture small- and medium-sized enterprises, target welfare programs for the elderly, combine information and communications technology and science, ease real estate regulations and possibly introduce a substitute holiday system.

Market observers said a boon in the stock market during the first year of presidency isn’t entirely new given that shares of environmentally friendly energy companies, from solar to wind power, spiked during the initial stages of the Lee Myung-bak administration, while information technology firms picked up under Roh Moo-hyun. During the early stages of the Kim Dae-jung government, startups and venture firms boomed.

SMEs’ time to shine

Park’s strong commitment to help small- and medium-size companies grow was evident in her inauguration speech Feb. 25. “One of my critical economic goals is to ensure that anyone who works hard can stand on their own two feet and where, through the support of policies designed to strengthen small- and medium-sized enterprises, such businesses can prosper alongside large companies,” she said.

In addition, the Park government will gradually scale back 160 tax incentives and programs to small businesses that actually prevented companies from growing because they didn’t want to lose the benefits.

“To help SMEs grow bigger, the new government will expand state financial support programs for SME R&D projects to sharpen their export competitiveness,” said Han Byeong-hwa, an analyst at Hyundai Securities. “The best way to find SMEs with potential for sustainable growth that match government policies is to examine how many years a company has been involved in the industry, whether it has a competitive edge in technology, including patents, and whether its major shareholders have a strong commitment to taking the company a notch higher.”

Other experts said banks that specialize in loans to SMEs will be another beneficiary of Park’s policy.

“To facilitate smooth funding of SMEs, government policies will be changed to give more autonomy to financial institutions and ease current regulations,” said Seo Yeong-su, an analyst at Kiwoom Securities. “This will provide growth momentum for Industrial Bank of Korea, which specializes in loans to SMEs.”

Creative economy

Market observers suggested Park’s “creative economy” initiative, which aims for Korea to break away from following advanced countries and become a front-runner in the global economy, will drive up stock prices of companies in IT, software, content and culture.

Park has defined her concept of a creative economy as “the convergence of science and technology with industry, the fusion of culture with industry and the blossoming of creativity in the very borders that were once permeated by barriers.”

The new government created the Ministry of Future Planning and Science, which will focus on the strategies and new areas to boost economic growth, and appointed Kim Jeong-hun, a former president of Bell Labs and chief strategy officer of Alcatel-Lucent, as its head.

“The Park administration will push for smart convergence policies in which infrastructure of information and communications technology and the related service sector develop simultaneously,” said Lee Sang-heon, an analyst at Hi Investment and Securities. “In terms of smart convergence infrastructure, SK Telecom, KT, LG U+ and NHN are likely to benefit.”

Health care, welfare

The government said it will inject 135 trillion won ($124.6 billion) over five years for a package of tailored welfare policies that include covering 100 percent of costs for cancer, heart disease, brain disorders and rare diseases through medical insurance starting in 2016. The plan is to cover 88 percent of those costs this year.

It will also allow health insurance to cover dental implant surgery for patients 75 and over starting next year and expand coverage to 70-year-olds in 2015 and 65-year-olds in 2016.

“The issue of providing a basic monthly allowance for elderly and medical insurance for four major diseases will continue during Park’s presidency,” said Kim Cheol-jung, an analyst at Korea Investment and Securities. “Stocks related to the health care sector are worth paying attention to.”

The Park administration has said it will expand welfare to all seniors over 65, paying them monthly allowances of 40,000 won to 200,000 won starting in July 2014.

The new government is considering whether to introduce a substitute holiday system adopted by advanced counties like Japan and Australia. If it happens, analysts said leisure and travel shares will benefit because there would be replacement days off when national holidays fall on weekends.

Meanwhile, analysts warned investors against reckless investment in stocks related to Park’s policies without thoroughly checking the company’s conditions, including financial sheets.

“Investors must refrain from blindly betting on themed stocks,” said Park Sang-min, an analyst at Shinhan Investment and Securities. “To have growing expectations for new policies extend to a jump in stock prices in related sectors, there must be a clear direction and cause of policies, facilitators who will put these policies into action and relevant budgets. Investors should get ideas for investment by looking at how Park’s election pledges and policies relate to the current trends.”

By Kim Mi-ju [mijukim@joongang.co.kr]