Presidential candidates fuel hope for domestic market-oriented stocks

A Seoul branch store of E-mart, a KOSPI-listed company, is crowded with shoppers, May 1. Yonhap

KOSPI-listed companies that rely on domestic consumers for sales of their goods and services are drawing attention from investors as major presidential candidates pledge to boost domestic demand once elected.

Market analysts said Monday that stocks of domestic market-focused firms, including those in retail, food and beverage, shopping, cosmetics and entertainment sectors, are increasingly attractive.

This came as Lee Jae-myung, the presidential frontrunner from the liberal Democratic Party of Korea (DPK), and Kim Moon-soo, Lee’s opponent from the conservative People Power Party (PPP), both underline the need to stimulate domestic demand.

Central to their pledges is improving public livelihoods at a time when households increasingly struggle with the high cost of living and have been reducing household spending.

The candidates also seek to help small businesses and self-employed individuals, many of whom have been hit hard by sluggish consumer spending.

While domestic consumption and exports are two key drivers of Korea's economic growth, export-oriented companies have largely prevailed in the KOPSI.

These companies make up more than 70 percent of the operating profits among those listed on KOSPI 200, an index tracking the performance of 200 leading companies, according to bourse operator Korea Exchange.

Foreign tourists shop for beauty products in Seoul's shopping district of Myeong-dong, May 6. Yonhap

“Under the circumstances, stocks in retail and food and beverage industries are anticipated to benefit from the upcoming presidential election, as it can help consumer sentiment rebound regardless of who is elected,” said Kim Hye-mi, a Sangsangin Securities analyst.

Calling the retail and food and beverage industries “barometers” of domestic demand, the analyst said that involved companies, such as Hyundai Department Store, E-Mart and Lotte Chilsung, are forecasting improved earnings after the presidential election.

Hana Securities analyst Park Eun-jung picked cosmetics, skin care and other beauty-related stocks as “worth looking at” in relation to the recovery of foreign tourist arrivals and the global popularity of Korean beauty brands.

According to the Korea Culture and Tourism Institute, the number of international tourists visiting Korea is expected to reach 17.5 million in 2025, which will represent approximately 93.5 percent of the pre-pandemic level.

“The more visitors come to Korea, the higher the chance for them to spend money here and contribute to an increase in spending,” the analyst said.

With regard to international visitors, Shinhan Securities analyst Ji In-hae said SM Entertainment and HYBE “are expected to gain ground as leading K-pop powerhouses listed on the KOSPI.”

“Multiple artists belonging to these companies are scheduled to make a comeback this year, and alongside their concerts, artist-themed merchandise and pop-up stores are expected to expand,” Ji said.

Domestic demand dragged down Korea’s GDP growth in the first quarter of the year, when economic output shrank 0.2 percent from three months earlier.

Domestic demand was responsible for a 0.6 percentage point decrease in the GDP compared to net exports, which contributed to a 0.3 percentage point increase.