In April, the stock with the largest decline in the KOSPI market was JinYang Chemical, a political theme stock. Despite the surge in stock prices around the impeachment verdict, speculative trading around political theme stocks eventually resulted in significant drops. Although there are frequent warnings against investing in political theme stocks due to their price movements unrelated to company value, regulating the investment mindset of individual investors is challenging.
According to the Korea Exchange on the 4th, JinYang Chemical had the highest drop rate of 33.70% in April. Its affiliates, JinYang Poly (-24.54%) and JinYang Industry (-19.62%), were also among the top decliners in April.
JinYang Chemical is known as a prominent theme stock related to Oh Se-hoon, the mayor of Seoul, due to the fact that Yang Jun-young, the vice chairman of JinYang Holdings, and Mayor Oh are alumni of the same university. JinYang Chemical hit the upper limit on the day of former President Yoon Seok-youl’s impeachment ruling on the 4th. It continued to surge on the 7th (+10.38%) and 8th (+29.87%) for two consecutive trading days. However, immediately after Mayor Oh announced he was not running for president, the stock hit the lower limit on the 14th (-29.99%) and continued to plunge on the 15th (-19.50%).
The preferred stock of Daesang Holdings, a thematic stock related to the presidential candidate Han Dong-hoon of the People Power Party, ranked second in terms of decline (-25.52%), while the thematic stock previously linked to former President Yoon Seok-youl, Deokseong Woo, ranked seventh (-16.67%), and Sunny Electronics, related to Ahn Cheol-soo of the People Power Party, was 12th with a -14.18% decline.
During the same period, political theme stocks also topped the earnings list in both the KOSPI and KOSDAQ markets. In the KOSPI, Ilseong Industrial (+125.81%) ranked first, and in the KOSDAQ, Sangji Construction (+811.76%) took the top spot.
Ilseong Industrial is categorized as a ‘Han Duck-soo theme stock’ as Vice Chairman Go Dong-su previously served as a civilian member of the Regulatory Reform Committee alongside former Prime Minister Han. Sangji Construction became a representative ‘Lee Jae-myung theme stock’ due to former outside director Im Moo-young joining the campaign of Democratic Party candidate Lee Jae-myung in the last presidential election.
Political theme stocks fluctuate wildly in price based on affiliations or connections to influential politicians, regardless of corporate value. Despite repeated warnings from the Financial Supervisory Service and the Korea Exchange about investment risks, it is difficult to quell the desire for quick profits through speculative trading.
The Korea Exchange issued an investment advisory on political theme stocks on the 23rd of last month, urging caution. They warned, “Political theme stocks may plummet instantly due to political news, poll results, or the disappearance of a theme,” and advised that being swept up in the overheated atmosphere could lead to significant losses.
An analysis by the Financial Supervisory Service on the 1st found that half of the 60 election-related theme stocks investigated, totaling 29 companies, were classified as ‘zombie companies,’ unable to cover interest expenses with operating income.
A representative from the Financial Supervisory Service noted that during the 19th presidential election held after a previous impeachment, stock prices also surged and fell repeatedly based on political shifts, returning to their original levels around the election date. They observed that political theme stocks are particularly prone to sudden declines when executives or major shareholders engage in large-scale sell-offs or issue additional shares during surges in stock prices.