How to Play the Olympics on the South Korean Stock Market

With the global stock selloff rattling markets globally, investors in Korean equities may be looking forward to some welcome distraction: the Winter Olympics.

South Korea will host the games this week in the alpine resort town of Pyeongchang with 2,925 registered athletes — the largest number ever at an Olympic Winter Games — from 92 national committees. What’s more, political instability on the Korean peninsular has calmed thanks to a diplomatic gambit initiated by South Korean President Moon Jae-in and embraced at the start of the year by North Korean Supreme Leader Kim Jong Un.

Shares of companies with a direct link to the games gained as much as 78 percent last year, indicating that investors tend to play the ‘Olympic theme.’ Still, some stocks don’t make for long-term investments, said Cho Byung-hyun, a strategist at Yuanta Securities Korea Co., as sales can fade after the event.

Going for Gold

Stocks related to the Winter Olympics rallied last year

QuickTake on why North Korea’s in and Russia’s (kinda) out at the Olympics

Here are some sectors that could benefit from the event:

Tourism

The participation of North Korean athletes in the Olympics has eased geopolitical risks on the Korean Peninsula, resulting in an increase of overseas travelers to the country, said Kim Yeong-Ho, an analyst at Samsung Securities, who recommends buying shares of Korean Air Lines Co. and Jeju Air Co.

The winter games should draw in 2.8 million overseas travelers to South Korea in February and March, a 15 percent jump from the same period a year earlier, according to data from Seoul’s city government.

Yong Pyong Resort Co., which manages newly-built residential apartments for players at the Olympics site and plans to sell units to the public after the games, is expected to post 10 percent earnings growth for 2018, said Se-Ra Park, an analyst at Shinyoung Securities Co. The stock rallied 22 percent in 2017.

Clothing Makers

South Korea’s clothing makers rallied months before the Olympics on expectations of a boost in sales of apparels and shoes made to mark the event. Shinsung Tongsang Co., the official Olympics winter jacket maker, surged as much 20 as percent in November and jumped 13 percent last month. Shares of Fila Korea Ltd., which makes the similar jackets and provides uniforms for athletes, rallied 22 percent since Nov. 1.

“We’ve added some clothing makers’ stocks since fourth-quarter of 2017, expecting earnings growth on unusually cold weather and special sports item marking the Olympics,” said Kim Sungtae, a portfolio manager at KTB Asset Management. “The Moon Jae-in government’s policy to stimulate domestic spending will buoy the shares even after the Olympics. Earnings will be better than expected.”

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