Book value

Six out of ten Kospi members defeated by routs are underperforming their book value

Six out of 10 Kospi members came to underperform their book value with the price-to-book (PBR) ratio of their stocks hovering below 1.0x as the key index lost most of its gains thanks to the loose liquidity of the past two years this year.

According to Korea Exchange (KRX) on Wednesday, the PBR of the country’s benchmark Kospi index is drifting around 0.9x after falling below 1.0x a month earlier.

The ACB is calculated by dividing the market capitalization by the book value of equity and a figure less than 1.0x indicates that the current market value of the company is lower than its book value or liquidation value.

“Generally, a PBR around 0.9 indicates an economic slowdown,” said Yang Hye-jung, analyst at DS Investment & Securities. “After peaking last year, economic growth has slowed this year but remains above the level of 2019. The current level of the stock market index already reflects concerns about the economic slowdown later this year and next year. .

The number of underperforming stocks with an ACB of less than 1.0x rose 40% year on year to 484 this year, representing 61% of all stocks listed on the Kospi.

Even some large caps including Kia, SK innovation, LG Electronics and Hanwha Solution fell below 1.0x, while shares of Samsung Electronics and SK hynix also fell each to record highs of 1.33x and 1.03x.

Some analysts recommend buying for bargains.

“Investors should buy Samsung Electronics shares when their PBR falls below 1.0x because it is a company that shows long-term growth,” Yang said.

Nomura Securities Research Center director Chung Chang-won agreed with Yang. In a conference call last Friday, Chung said that although SK hynix’s ACB fell below 1.0x, it will eventually rebound and investors who bought SK hynix shares below 1.0x in the past were able to make a profit.

Experts have warned, however, that investors should be careful when investing in low PBR stocks that have high investment risks such as low growth potential or high debt ratios.

After the continued rout in equities, stocks such as DB Financial Investment, Eugene Investment & Securities, Kyobo Securities, Hyundai Motor Securities and Kiwoom Securities recorded PBR below 0.5x.

By Kim Geum-yi and Susan Lee

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