The shipbuilding sector is experiencing a significant upturn, driven by improved industry conditions and the “Trump trade” phenomenon—where investors anticipate former President Trump’s election and allocate funds into beneficiary stocks. This has led to a substantial rise in the stock prices of South Korea’s major shipbuilding companies, including HD Korea Shipbuilding & Offshore Engineering (HD KSOE), Hanwha Ocean, and Samsung Heavy Industries (SHI), which have increased by 24-62% this year. Foreign investors have maintained their buying spree, and experts predict that these stocks will likely lead the market in the second half of the year as the shipbuilding industry’s supercycle continues.
Specifically, HD KSOE, the leading company in South Korea’s shipbuilding industry, has seen its shares climb by 62.4% through July 23. Hanwha Ocean and SHI have also recorded increases of 24.05% and 44.93%, respectively, during the same period.
Exchange Traded Funds (ETFs) focused on shipbuilding stocks are also showing strong returns. According to Koscom ETF Check, Shinhan Asset Management’s ‘SOL Shipbuilding TOP3 Plus’ posted a 13.32% return over the past month, ranking second among domestic equity ETFs, following KIM ACE Tesla Value Chain Active ETF. Its year-to-date return is an impressive 38%. This ETF maintains over 80% of its portfolio in the three major shipbuilders—HD KSOE, Hanwha Ocean, and SHI.
A key factor driving the strength of shipbuilding stocks is the improvement in industry conditions. Clarksons Research’s ‘Newbuilding Price Index,’ a key profitability indicator for the shipbuilding industry, reached 187.78 points as of July 12, the highest this year. This index has been on the rise since March, reflecting increasing demand for new ships, which boosts shipbuilding companies’ performance.
The rise in newbuilding prices is largely due to the approaching replacement cycle for LNG carriers sold during the 2008 supercycle and the accelerated replacement period due to stricter global environmental regulations. HD KSOE recently signed a contract to build 12 ultra-large container ships worth 3.6832 trillion won (approximately $2.66 billion) with a European shipping company, exceeding its annual order target. SHI reported $4.9 billion in orders for the first half of this year, a 53% increase from the $3.2 billion recorded during the same period last year.
Shipbuilding stocks are also benefiting from the ‘Trump trade’ theme, which anticipates a boost in fossil fuel investments and increased U.S. LNG or LPG exports if former President Trump wins the upcoming election. This could lead to more orders for LNG or LPG carriers. Additionally, the low won-dollar exchange rate, hovering around 1,380 won per dollar, enhances shipbuilders’ profitability since they receive payments in dollars and benefit when the exchange rate rises after securing orders.
