While foreign investors made net sales of more than 14 trillion won this month in the domestic stock market (KOSPI and KOSDAQ), they instead concentrated their investments in LG Group stocks. As large-cap semiconductor stocks that had driven the market higher undergo a correction, money is flowing into LG Group stocks, which had received relatively little attention.
According to the Korea Exchange (KRX) on the 28th, three LG Group stocks were among the top 10 net purchases by foreign investors this month. The most bought stock was LG CNS (152.6 billion won). LG CHEM (137.7 billion won) and LG Innotek (100.3 billion won) followed, ranking No. 4, No. 5 and No. 8 in net purchases, respectively. LG Energy Solution ranked No. 23 with 57.5 billion won in net purchases.
A financial investment industry official said foreign investors appear to have engaged in rotational buying focused on stocks expected to rise, rather than strategies based on corporations' valuations, as the domestic market recently hit a peak and is coming down.
During the same period, foreign investors made net sales of 14.1659 trillion won in the domestic stock market. In particular, they sold SK hynix and Samsung Electronics shares worth 8.7309 trillion won and 2.2292 trillion won, respectively.
LG Group's main business areas are electronics, telecommunications and information technology (IT), chemicals and batteries, and household goods. Excluding preferred shares, 10 group stocks are listed on the domestic market: LG, Display, H&H, CNS, Energy Solution, Uplus, Innotek, Electronics, HelloVision and CHEM. In addition to the top four net-purchased stocks, foreign investors also made net purchases of LG Uplus (10.3 billion won) and LG Electronics (1.8 billion won), but they drew relatively less attention.
With semiconductor stocks losing steam, foreigners are seen starting to buy LG Group stocks that had long been overlooked. SK hynix and Samsung Electronics shares surged 108% and 54% over the two months of September–October, while LG CHEM and Innotek rose 43% and LG Energy Solution gained 34%. LG CNS, by contrast, fell 2.5%.
A financial investment industry official said foreign investors who realized gains in semiconductor stocks likely rebalanced into stocks that corrected or sectors with room to rise. The top net-bought LG Group stocks fell 1.7%–12.5% this month, suggesting foreigners bought on the view there is room for a rebound.
Another factor drawing foreign interest is LG Group's large-scale investment stance centered on the chemicals and battery institutional sector. According to Yuanta Securities Korea, as of the end of this year, investments in the chemicals and battery institutional sector account for about 70% of the entire group.
At the group level, a large-scale retirement of treasury shares to enhance shareholder value could also support the stock price. On the 28th, eight listed companies of LG Group simultaneously disclosed the "status of implementation of the plan to enhance corporate value." The holding company LG will cancel all treasury shares worth 250 billion won in the first half of next year, and LG Electronics also plans to cancel all of its treasury shares after approval at next year's shareholders meeting.
This year alone, the holding company LG, along with LG Uplus and LG H&H, canceled a total of 500 billion won in treasury shares, and interim dividends were also actively carried out. In September, LG executed an interim dividend of 154.2 billion won.
LG Group also said it will raise its return on equity (ROE) over the mid to long term through efficient allocation of resources and expanded shareholder returns. ROE is a representative profitability indicator that shows how much profit corporations generated with their equity.
Specifically, LG Electronics aims to achieve ROE of at least 10% by 2027; LG Innotek at least 15% by 2030; and LG CHEM (excluding Energy Solution) at least 10% by 2028.
Gong Mun-ju, an analyst at Yuanta Securities Korea, said that for LG Group, while the large-scale investment stance centered on the chemicals and battery institutional sector continues, profitability has been recovering gradually this year.
However, it was noted that the annual capital expenditure of about 1 trillion won in the underperforming chemicals institutional sector is a burden. Gong said, LG CHEM is pursuing financial management by selling part of its equity in Energy Solution due to accumulated financial burdens, adding that it is necessary to monitor whether facilities will be integrated or reduced in connection with the restructuring of Korea's petrochemical industry and any changes in the financial structure.