Investors turn to non-export stocks as tariff woes persist

A shopping cart is filled with packs of cookies and other processed foods at a supermarket in Seoul, April 6. Yonhap

Shares of companies whose business relies largely on domestic demand are drawing investors' attention as they try to minimize risks from the fallout of U.S. President Donald Trump’s tariff war, which has hit exporters hard, analysts said Monday.

Trump has been shocking stock investors in Seoul for more than a week with his administration's erratic tariff policy by first imposing more severe than expected duties and then abruptly declaring a 90-day delay in implementing the plan.

The country-specific tariffs also took a new turn with the exclusion of smartphones and other electronic devices, regardless of country of origin.

The unpredictable nature of Trump’s policy continues to unnerve the Korean stock market as it is closely related to exports. The uncertainty is prompting investors to buy stocks that are relatively safe from U.S. tariff shocks, analysts said.

Hanwha Investment & Securities analyst Kim Soo-yeon said the correlation between the benchmark KOSPI and daily export value is estimated at 0.85 from January to September 2024, according to securities data. A reading closer to 1 means a stronger correlation.

“Under the circumstances, stocks related to domestic demand are considered safer to invest for the time being,” Kim said. “To be more specific, these are stocks from food and beverage, logistics, entertainment and banking industries, compared to those from semiconductors, cars and battery sectors."

He said that, while domestic demand-oriented stock also took a hit from the U.S. tariff shock, they still have “smaller uncertainties concerning a turbulent trade environment."

Korea Investment & Securities analyst Kim Dae-jun voiced a similar view.

“Investing in export-oriented stocks means taking the risk of loss over Trump’s tariff war and prolonged threats on outbound shipment, and paying attention to the domestic business-oriented stocks can be a recommended strategy,” the analyst said.

Kiwoom Securities analyst Kim Yoo-mi also said, “Export-oriented stocks are bound to struggle in a situation where trade conflict intensifies."

“In that regard, it may be right to pursue low-risk, stable-return strategies rather than chasing high-risk, high-return opportunities,” Kim said, adding that the government’s plan for a supplementary budget worth 10 trillion won ($7 billion) is another reason to consider buying stocks related to domestic demand.

“The discussion on extra budget is gaining ground as the early presidential election approaches,” Kim said.

Analysts pointed out that the Democratic Party of Korea is demanding the supplementary budget to be as high as 35 trillion won and that such demand can help raise investors’ attention toward domestic demand-related stocks.

“Furthermore, talks on extra budget can spread to other subjects on economic stimulus, which is another plus factor for domestic business-oriented stocks," said Kim Yoon-mi.