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Naver, Kakao share dip shocks young investors

Naver and KakaoTalk apps are displayed on a smartphone. (Bloomberg)
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For Lim Jeong-yeo, a 30-year-old retail investor who lives in Seoul, Kakao and Naver shares account for 80 percent of her surplus cash and most of her portfolio.

“I wish I had found a more appropriate timing to buy the shares – I didn’t know it was going to go down like that,” she said on Wednesday.

Lim is one of the growing numbers of “young Korean investors” in their twenties and thirties who believe that saving their monthly wages is no longer the answer to their personal finances. Stocks and cryptocurrencies have gained popularity among young investors here in recent years as a measure to boost their finances, so that they can actually buy personal property such as homes, whose prices have skyrocketed.

With their ever-expanding platforms and successful initial public offerings, Big Tech giants Kakao and Naver have become the most sought after stocks for young investors. Kakao Pay, the largest online payment service operated by Kakao, raised 1.53 trillion won ($1.3 billion) in its initial public offering in October last year, years after digital banking unit KakaoBank raised 2.5 trillion won earlier in the same year.

Naver and Kakao, which debuted on the country’s tech-heavy secondary exchange Kosdaq nearly two decades ago and later moved to major exchange Kospi, are Amazon and Apple in South Korea. They were supposed to be the pillars of individual investor portfolios and weather the storms of the Fourth Industrial Revolution.

Although they rebounded slightly on Wednesday, Naver and Kakao shares shocked investors after their market shares shrank $14.9 trillion since the start of the year. Hints of the US Federal Reserve about raising interest rates faster than expected and tightening monetary policy have been blamed, but doubts surrounding the continued growth and management ethics of big tech companies have been at the heart of the storm.

The recent dumping of Kakao Pay executives into the company’s shares caused a ripple that drove down the share prices of the subsidiaries as well. The current CEO of Kakao Pay, Ryu Young-joon, who has been appointed as the co-CEO of the parent company of Kakao Corp. In November, it dumped 230,000 Kakao Pay shares worth 46.9 billion won in a December combined transaction. Ryu has formally asked Kakao to retract his nomination as co-CEO, which was confirmed in March by shareholders, and is set to step down from his current role as Kakao Pay CEO.

Indicating the new uncertainty surrounding Kakao, Goldman Sachs analyst Park Sein-young on Wednesday cut KakaoBank’s rating from “neutral” to “sell”. It lowered its target price by 36 percent from the previous 82,000 won to 52,000 won.

Park’s memo revealed that management ethics wasn’t the only risk surrounding the company, saying the government’s tightening grip on the real estate market and home debt could pose obstacles to KakaoBank’s loan business.

Kakao closed at 97,200 won on Wednesday, up 2.33 percent from the previous session, after hitting an all-time low of 95,000 won on Tuesday.

Naver shares closed at 345,500 won on the same day, up 3.13% from the previous session. Although it might look a little better than Kakao, its share price is down about 11% since the beginning of the year, compared to Kakao by about 14%.

Naver also faces similar risks identified by the financial authorities’ tight grip on large tech groups.

“Navir’s e-commerce sales have slowed and higher labor and marketing costs is likely to lead to an 8.2% drop in operating profit growth for the fourth quarter of 2021,” Oh Dong-hwan, senior analyst at Samsung Securities said.

“Concerns surrounding government regulations are growing on the big tech companies, so their inventory is expected to improve after the effects of the global content business materialize in the second half of this year.”

Samsung Securities lowered Naver’s price target by 9.3% from the previous 540,000 won to 490,000 won.

Despite the volatility caused by the US Federal Reserve’s shift in monetary policy, stocks are likely to remain the preferred investment method for young investors.

In a survey conducted in December jointly with The Herald Business, the subsidiary of the Korea Herald, 31.8% of 1,018 South Koreans aged 18 to 39 chose “stocks” as their preferred investment choice. And it ranked second after “real estate”, which got 38.1 percent.

“I don’t plan to offload my Kakao and Naver shares right now,” Lim said.

“This is a long-term investment. I just hope that Kakao and Naver do a better job of managing their workforce and employees, which is a major task that IT companies face these days.”

Written by Jung Min Kyung (mkjung@heraldcorp.com)

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