By Kim Yoo-chul
Green is emerging as a buzzword in business circles here, as corporate leaders are struggling to foster green businesses as a future growth engine in order to bounce back post-financial crisis.
Growing interest over green businesses has spiked the prices of the so-called green shares, or stocks of companies engaged in eco-friendly enterprise, re-igniting a debate over a potential "green bubble."
The recent bullishness of green stocks took market participants back to two years ago when a "green boom" had hit the local equity market.
They might have sensed a dejavu as both booms were propelled by the encouragement from presidents.
In 2008, the first green boom was triggered by President Lee Myung-bak when he announced a vision to transform the country into a green economy.
This year, U.S. President Barack Obama has led the trend.
Green stocks have risen sharply after he said on July 16, "LG Chem's rechargeable battery plant in the U.S. is our future."
Now people are trying to figure out whether this frenzy is just a passing phenomenon or the beginning of a long-term ascent.
Analysts are widely split over whether it is green boom or bubble but one thing obvious is that this time the potential is not likely to wane quickly like it did two years ago.
So far, Samsung, LG, SK Group-affiliated units such as LG Chem, Samsung SDI, LG Innotek, Samsung Electro-Mechanics, SK Energy were among the top firms that have seen spikes in their shares.
Analysts still recommend investors to buy from those despite already a months-long steady and hefty gains.
"Green stocks are riding high. After experiencing technical corrections, prices have become more attractive, justifying the forecast for further rising momentum," said Lee Yoon-hak, a senior analyst at Woori Investment & Securities, Monday.
One of the key reasons to make the outlook of "the shares" rosy is the ongoing urbanization projects in China, supporters say.
China, recently upsetting Japan to become the world’s second-biggest economy after the United States, has been maintaining its policy consistency to boost urbanization rates into the underdeveloped northern and western parts of the country, pushing Beijing to steadily implement eco-focused and energy saving measures.
Cho Young-june, a chief analyst at Shinyoung Securities, said the axis of the global growth has been shifting to Asia's leading industrial countries from the United States and Europe and expected faster urbanization in China to broaden business expansion for green-focused South Korean industrials.
"Urbanization means the scarcity of fossil fuels. China will lead the green growth for an efficient management of its urbanization efforts," Cho said.
According to the analyst, China's overall urbanization was below 50 percent in 2008 ― below the average of developed countries of 60 percent. Beijing was giving thousands of dollars in subsidies per unit to consumers who buy an electric car.
China has mostly relied on administrative tools to realize its 20 percent energy intensity reduction target between 2006 and the end of this year.
To that effect, the country's top 1,000 energy consumers have signed contracts with the central government to improve their energy efficiency.
Earlier, Beijing has pledged to cut its carbon emissions per unit of economic growth by 40 percent to 45 percent by 2020 from 2005 levels.
South Korea's 30 major industrial groups plan to invest 22.4 trillion won or $18 billion in eco-friendly technologies by 2013, an increase of 48 percent from the 15.1 trillion won the companies spent in the past three years.
With financial and administrative support, major European and American carmakers have been strengthening partnerships with South Korean component producers to manufacture energy-saving cars.
"Situations were in favor of green stocks. Governments’ announcements and investments for related projects by major set makers will continue," said Lee Jae-hoon, an analyst at Dongbu Securities.
The local brokerage revised up its target price for LG Chem to 420,000 won per share from 290,000 won.
U.S.-based investment bank Morgan Stanley has also maintained its overweight position for LG Chem and raised its target price to 390,000 won from 340,000 won, citing solidified corporate fundamentals amid green initiatives.
From January to June, shares of LG Innotek, Samsung Electro spiked over 120 percent, while LG Chem and SK Energy added some 40 percent, according to the data from the Korea Exchange (KRX), the operator of South Korea’s stock market.
LG Chem, Samsung SDI and SK Energy are supplying rechargeable batteries to big car makers such as Volvo, BMW, Hyundai-Kia and Ford.
LG Innotek and Samsung Electro are producing light-emitting diode (LED) chips to be used in energy-consumed LED-backlit LCD-embedded products including TVs.
All of them are expected to report historically high earnings for the year yet analysts say it's too premature to say their profit curves will be drastically cut in the coming years.
"Despite shares increases, the PERs of those stocks are still low and competitive compared to other overseas stocks in similar industries. Valuations are quite attractive," said Sohn Young-joo, an analyst at E-Trade Securities.
LED chips are an energy-efficient, environmentally friendly alternative to current cold cathode fluorescent light (CCFL) backlights. LEDs don’t use mercury.
Some, however, have warned of "blind approaches" to green-related stocks.
Feared by a possible "green bubble," investors are advised to stay away from speculative trading and asked to buy leading stocks but only with a long-term view, analysts say.
"It is necessary to control the speed. The current 'green frenzy' is similar to the 'dot.come rally' in the stock market in early 2000," said Taurus Securities.
For instance, Shinyoung said it was maintaining its "sell" position to KOSDAQ-listed Wooree ETI, citing the infant phase of the company's strategic LED packaging business and some patent-related issues.
"It's uncertain Wooree's LED business can sail on the stable route within a shorter time," the brokerage said.
According to the Korea Exchange, foreign investors were steadily buying green stocks showing more attention to leading chips such as Seoul Semiconductor and Lumens.
"LED- and solar-related chips are still the top concern for foreign investors. But attention needs to be glued not to the main bourse KOSPI but to the tech-loaded KOSDAQ," according to Taurus.
Daewoo Securities has also urged investors to invest more in green stocks, citing volatile oil price moves, and it called for more prudence.
"Conglomerates-affiliated stocks are worthy of getting more credit for long-term business potential but that doesn't mean all green-related stocks will benefit amid the market boom."