The KOSPI index has dropped nearly 20% this month, leading to significant losses for investors. However, key defensive stocks in the banking, telecommunications, and tobacco sectors have shown relative resilience. All 12 stocks in these categories either fell less than the KOSPI or increased in value, but only KT&G reported actual gains.
According to data from the Korea Exchange, the KOSPI fell by 19.07% from October 1 to 22. The index, which stood at 6,838.04 on September 30, rose to 7,003.74 on October 2 before plummeting to 5,533.77 by October 22.
Defensive stocks are typically companies that maintain stable performance during economic downturns or reduced consumer spending. Telecommunications and tobacco are prime examples. Even in a poor economy, consumers are unlikely to significantly reduce their use of mobile phones and internet services, ensuring steady monthly revenue. Similarly, tobacco products tend to have relatively stable demand, making them less susceptible to drastic sales declines during recessions.
Banks, however, differ from typical defensive stocks as they are sensitive to economic conditions and interest rate changes. Nonetheless, their broad customer base generates interest income, and their dividend appeal, along with the capital strength of large financial groups, can provide some defense during market downturns. Stable cash flow and high dividend yields become attractive to investors when expectations for stock price increases diminish. Conversely, banks can also suffer if economic downturns lead to higher delinquency rates and increased loan loss provisions.
During this market decline, defensive effects were evident. The average return for eight bank stocks during the same period was -9.27%, while three telecommunications stocks averaged -6.92%. Compared to the KOSPI, these returns were 9.80 percentage points and 12.15 percentage points higher, respectively. In contrast, KT&G, the leading domestic tobacco company, saw its stock rise by 9.99%, making it the only stock in the analysis to record positive returns.
Among bank stocks, Industrial Bank of Korea fared the best, with a decline of only 1.73% from October 1 to 22. KB Financial (-6.28%) and Hana Financial Group (-7.77%) also experienced relatively smaller declines.
On the other hand, Shinhan Financial Group suffered the most, with a drop of 14.89%. BNK Financial Group (-12.44%), Woori Financial Group (-10.46%), JB Financial Group (-10.31%), and iM Financial Group (-10.24%) also recorded double-digit declines.
Concerns over capital burdens related to Shinhan's acquisition of Lotte Insurance have been cited as a factor affecting its stock price. On October 13, Shinhan Financial signed a contract to acquire a 77.04% stake in Lotte Insurance for 693.3 billion won. While this acquisition could strengthen its non-banking sector, potential future capital increases remain a variable.
The performance of the three major telecommunications companies varied. LG Uplus saw a slight decline of 0.69%, effectively maintaining its stock price, while KT and SK Telecom fell by 9.08% and 10.98%, respectively. Despite being in the same sector, there was a significant difference in stock price resilience.
Analysts attribute these differences to the investment burdens of AI data centers and shareholder return policies. Daol Investment & Securities recently identified cash flow burdens from AI data center investments and stock buyback policies as factors differentiating the stock performances of the three telecommunications companies. LG Uplus managed to mitigate investment burdens through partnerships with external operators while also engaging in stock buybacks, resulting in relatively stronger stock price resilience.
KT&G stood out among the stocks analyzed. Its share price rose from 176,200 won on September 30 to 193,800 won by October 22. On October 21, it even reached an intraday high of 196,400 won, setting a new 52-week record.
This stock strength is attributed not only to its defensive stock characteristics but also to expectations of improved performance and expanded shareholder returns. KT&G announced a plan last month to buy back and retire shares worth 360 billion won. The company is also expected to report increased operating profits for the third quarter compared to the same period last year, driven by growth in its overseas tobacco business.
Even when extending the analysis period from July 1 to October 22, the relative strength of defensive stocks remains evident. During this period, the KOSPI fell by 34.72%, while the average return for the eight bank stocks was -1.19%, and the three telecommunications stocks averaged -6.95%. KT&G actually rose by 14.20%.
Notably, Woori Financial Group (7.76%), JB Financial Group (5.24%), Hana Financial Group (4.62%), and LG Uplus (3.07%) also recorded positive returns. Among the 12 stocks analyzed, five provided returns to investors during the four-month decline.
However, it is important to note that being classified as a defensive stock does not eliminate the risk of stock price declines. Even with a stable revenue structure, stock prices can fluctuate significantly due to rising interest rates, increased investment costs, and individual companies' financial burdens. In this analysis, while many bank and telecommunications stocks outperformed the KOSPI, they still could not avoid actual losses.
* This article has been translated by AI.
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