November 23, 2024

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An electronic signboard in the dealing room of Hana Bank in Seoul shows the benchmark Kospi having lost 1.14 percent to close at 2,763.51 points on Monday. (Yonhap)

Analysts here took a mixed view on how US President Joe Biden’s withdrawal from the November presidential race would affect South Korean shares, with growing uncertainty expected to hurt investor sentiment.

Some brokerages expected the benchmark Kospi index to dip below the 2,650 level due to heightened short-term volatility.

Others anticipated the main bourse would rise to 2,900 thanks to the recovery of shares in the semiconductor, automobile and rechargeable battery industries. These industries came under selling pressure from some who think Donald Trump might get reelected and repeal subsidies for clean energy and electric vehicles.

“Generally, stock market volatility tends to increase right before the US presidential election. We are still in that process. It seems necessary to take a defensive approach to the market for the time being,” said Kim Dae-joon, an analyst at Korea Investment & Securities.

On Sunday, Biden announced that he will not accept the nomination for president and will endorse Vice President Kamala Harris in the race to be the Democratic Party nominee.

The Kospi shed 1.14 percent to close at 2763.51 points, marking four consecutive sessions of losses since hitting 2866.09 points on July 16.

Secondary battery stocks such as LG Energy Solution, Samsung SDI, LG Chem and Posco Holdings lost 4.92 percent, 4.2 percent, 4.05 percent and 2.29 percent, respectively. Chipmakers SK hynix and Samsung Electronics also dropped 2.15 percent and 1.66 percent as investors worry that a potential second Trump presidency would negatively affect them due to his tariff plans and renewed trade war with China.

Mirae Asset Securities Analyst Kim Seok-hwan predicted that foreign investors' tendency to sell semiconductor-related stocks on the Korean stock market might increase.

“Extensive selling pressure in the semiconductor industry is expected to limit an increase in the domestic stock market,” he said.

Over the past week, overseas investors' net sales amounted to around 867 billion won ($6.2 million), while semiconductors alone recorded net sales of around 955 billion won.

“For the time being, it is necessary to focus on risk-off (situations in which investors tend to avoid risk and move funds to safe assets) rather than risk-on,” he said.

Cho Yeon-joo, analyst at NH Investment & Securities, pointed out that Biden’s withdrawal could increase the chances for the Democratic majority in the US House of Representatives.

According to Cho, even if Trump hypothetically were to win reelection in November, he would not be able to repeal Biden's signature Inflation Reduction Act or further ease the Dodd-Frank Act -- a collection of financial reform legislation to regulate and stabilize the financial sector -- as those would need support from House Democrats.

"This increases uncertainties for stocks tied to Trump such as renewable energy, electric vehicles and banks," Cho said.

By Park Han-na (hnpark@heraldcorp.com)