Thematic investing on presidential election triggers warnings as shares yo-yo

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Thematic investing on presidential election triggers warnings as shares yo-yo

Published: 05 May. 2025, 17:52

Audio report: written by reporters, read by AI

The Kospi and Kosdaq closing prices are seen on a screen at the Korea Exchange in Yeouido, western Seoul, on April 9. [YONHAP]

Political thematic investors are setting off red alerts among authorities as they wager on companies likely to benefit from the upcoming presidential election, set for June 3, with a victory for one political party.

Thematic investing refers to buying shares of companies bundled under a certain trend or theme — for instance, the presidential election — with stocks of such companies referred to as "theme stocks" in Korean.

The financial watchdog issued warnings for the stocks of 56 companies that saw significant price fluctuations with the thematic investment trend across the Kospi and Kosdaq markets in April, according to the Korea Exchange on Monday. This is a 5.1-fold increase from the same month last year, when there were 11 cases, and marks the highest monthly figure on record.

A 2.9-fold increase

The list includes a slew of stocks classified as political theme stocks that have some degree of association with the presidential candidates, often through prominent executives joining campaigns.

Stocks with a connection to Lee Jae-myung, the Democratic Party’s (DP) presidential candidate, include Hyungji Elite, Hyungji Global, Hyungji I&C, Sangji Construction and Orient Precision.

Theme stocks associated with other candidates also made the list. These include Pyung Hwa Holdings, linked to People Power Party (PPP) candidate Kim Moon-soo; i-Scream Edu, tied to independent candidate Han Duck-soo; and Taeyang Metal Industrial, associated with former PPP primary candidate Han Dong-hoon.

Stocks are placed on the warning list for 10 days if the financial watchdog sees an abnormal spike in prices and patterns of unfair trading practices. This designation is part of a three-stage market warning system — rising from "investment caution" to "investment warning" and then "investment risk."

Once designated investment warning stocks, these stocks come with restrictions: Investors must deposit 100 percent of the order value upfront, and margin trading is prohibited. The number of investment caution stocks, one level lower, also surged to 333 in April, nearly triple the figure from a year ago, when there were 113 cases.

Presidential candidates, including independent candidate Han Duck-soo, second from left, People Power Party candidate Kim Moon-soo, second from right, and Democratic Party candidate Lee Jae-myung, right, pray at an event celebrating Buddha's Birthday at Jogye Temple in Jongno District, central Seoul, on May 5. [NEWS1]

Playing the money game

A key characteristic of political theme stocks is their extreme volatility. The average daily price fluctuation for the Kospi this year has stood at 1.2 percent, while Hyungji Elite and Pyung Hwa Holdings shares fluctuated 12.5 percent and 15.1 percent, respectively — 10.4 to 12.6 times higher, according to the Korea Exchange. On Friday alone, the two stocks fluctuated by 41.1 percent and 47.5 percent.

There has also been a notable rise in credit-based investments — or "debt investments" — in political theme stocks. As of Friday, the margin loan balance for Hyungji Elite was 1.17 billion won ($839,660), up 2.8 times from the end of last year.

Sunny Electronics, a theme stock linked to former PPP primary candidate Ahn Cheol-soo, saw its margin loan balance rise from 2.27 billion won to 4.42 billion won in the same period. For Daesang Holdings, associated with Han Dong-hoon, margin loans rose from 18.31 billion won to 26.85 billion won, an increase of about 1.5 times.

Particularly concerning is the fact that many political theme stocks have weak financial fundamentals.

Independent presidential candidate Han Duck-soo, right, and People Power Party candidate Kim Moon-soo, left, are seen at an event celebrating Buddha's Birthday at Jogye Temple in Jongno District, central Seoul, on May 5. [JOINT PRESS CORPS]

The Korea Exchange analyzed 60 such stocks with a warning designation or higher between December of last year and April 18. For Kospi-listed political theme firms, the average revenue was 331.7 billion won with an operating profit of 3.6 billion won — only 14.9 percent of the Kospi average revenue of 2.23 trillion won and average operating profit of 150.6 billion won.

“Among Korea’s political theme stocks, actual policy beneficiaries are extremely rare,” said Nam Gil-nam, senior research fellow at the Korea Capital Market Institute. “Most of the connections with candidates are vague, such as shared school or regional backgrounds.”

“Even if the candidate is elected, the stocks typically begin to fall before the election,” Nam added. “Since there is no real correlation between a company’s intrinsic value and its stock price movement, these stocks effectively become casino-style speculative bets on ‘who gets out first.’”