Reports have emerged that the United States may cut its defense spending, causing domestic shipbuilding stocks to weaken in early trading on the 20th. Since stocks had risen in anticipation of U.S. Navy vessel projects, many investors interpret this as bad news.
HD Hyundai Marine Solution shares were traded at 147,100 won on the KOSPI market at 9:29 a.m. on the 20th. The stock price fell by 9.48% (15,400 won) compared to the previous day.
The so-called 'big three' in shipbuilding—HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries—are all experiencing declines. The drop is more pronounced for HD Hyundai Heavy Industries and Hanwha Ocean, which have specialized vessel divisions.
The possibility of U.S. defense budget cuts seems to have frozen investor sentiment. The Washington Post (WP) reported that U.S. Secretary of Defense Pete Hagel instructed the Department of Defense to prepare a plan for annual cuts of 8% to the defense budget over the next five years on the 19th (local time). Given that the U.S. defense budget is $850 billion (approximately 1,200 trillion won), an 8% cut in the first year would reduce it by $68 billion (approximately 100 trillion won).
A report from securities firms also indicated that the stock prices of HD Hyundai Heavy Industries and Hanwha Ocean have risen to levels that make valuation difficult.
Kang Kyung-tae, a Research Institute analyst at Korea Investment & Securities, noted that "it is difficult to explain the current valuation of Hanwha Ocean, even with various measurable means." He commented on HD Hyundai Heavy Industries, saying, "Even assuming the best-case scenario for its market entry in the U.S., the current stock price is expensive." He then downgraded his investment opinion on both Hanwha Ocean and HD Hyundai Heavy Industries to 'neutral.'