K-pop girl group NewJeans / Courtesy of Ador
By Anna J. Park
The share prices of four major Korean entertainment companies have gone into free fall, largely triggered by a highly publicized conflict at HYBE, the management company behind K-pop titans BTS. Market observers suggest that the ongoing dispute plaguing Korea’s largest entertainment company in terms of market capitalization has eroded investor confidence in the Korean entertainment sector in general.
According to the Korea Exchange (KRX), the share prices of four major entertainment companies fell throughout April.
HYBE shares showed the biggest drop, plunging 12.17% in April. This was followed by YG Entertainment, whose share price fell 9.9%, while SM Entertainment shares fell 9.6% and JYP Entertainment’s issuance fell 7.4%.
Compared to prices at the beginning of this year, the decline has become more pronounced, with all four companies showing significant drops in their share prices.
JYP has performed the weakest, with its share price falling 34.15% so far this year, followed by YG, which has suffered a loss of 16.6%. SM shares fell 13.8%, while HYBE recorded a 13.4% decline during the first four months of this year.
Foreign and institutional investors have been leading the selloff, transitioning to net short positions totaling approximately 700 billion won ($507 million) so far this year, reflecting their declining optimism about the future earnings and operating profits of the four companies and casting doubt on whether the current growth dynamism can be sustained in the near future.
One notable trend is the contrasting behavior of retail, foreign and institutional investors. While foreign and institutional investors sold shares in the entertainment sector, retail investors looked for bargains.
For example, foreign and institutional investors each sold 154.5 billion won and 36.6 billion won worth of HYBE shares respectively from April 22 to 26, when the rivalry between HYBE and its sub-brand Ador, the agency that manages K-pop group NewJeans, made headlines. . This caused HYBE’s share price to fall 12.58%, losing more than 1.2 trillion won in market capitalization in just five trading sessions.
In contrast, retail investors purchased 191.7 billion won worth of HYBE shares during the same period. period. Net stock purchases by retail investors reflect their strong belief in the fundamental profit-generating power of leading entertainment companies despite current short-term fluctuations in their stock prices.
Furthermore, the scheduled returns of major K-pop artists and rookie groups from the four major entertainment agencies in the near future have also boosted retail investors’ earnings expectations.
“In the worst-case scenario of NewJeans being excluded from HYBE’s artist lineup, the negative impact on the company’s annual earnings and operating profit is estimated to be less than 10 percent,” said Park Su-young, an analyst at Hanwha Securities, adding that the company’s long-term growth prospects are expected to remain intact.
Ji In-hae, entertainment and media analyst at Shinhan Securities, also said he maintains a positive outlook on entertainment stocks as he sees that “the momentum after the second quarter has not changed.”
