KRX Construction Stocks Plunge 23% Amid Fading Mideast Reconstruction and Nuclear Power Hopes

The 'KRX Construction Index,' which tracks the stock prices of domestic construction companies, showed a sluggish performance, falling 22.7% over the past month. This contrasts sharply with the KOSPI index, which rose 23.82% during the same period. Major construction firms included in the index, such as Daewoo E&C, DL E&C, and GS Engineering & Construction, also saw their stock prices decline.

This downturn is attributed to the dimming prospects for large-scale reconstruction projects and nuclear power plant orders in the Middle East, which construction companies had been anticipating. The momentum for nuclear power projects that drove stock price increases earlier in the year has also waned due to a lack of related news, dampening investor sentiment. Construction stocks, which had surged on expectations of entering the U.S. nuclear market, experienced profit-taking as news flow dried up.

Kim Sun-mi, a researcher at Shinhan Investment & Securities, analyzed that a combination of factors, including a supply imbalance favoring the IT sector, the absence of nuclear power events, and the possibility of interest rate hikes, contributed to a sustained phase of profit-taking in construction stocks.

Ha Min-ho, a researcher at Hana Securities, explained the lack of news concerning the Fermi America Matador Project, expected in the second quarter, and the planned commencement of construction for Holtec's Palisades Small Modular Reactor (SMR) site in the third quarter. He also noted upcoming events in the third quarter such as Vietnam's Team Korea construction bid and the Holtec SMR site groundbreaking, as well as investment expectations in U.S. nuclear power, and in the fourth quarter, nuclear projects in Bulgaria and Romania.

The consolidation of the K-nuclear power 'One Team' system through the Nuclear Power Plant Export Strategy Council can be seen as preparatory work to strengthen the rationale for Korean companies' participation in U.S. investment and overseas nuclear power negotiations. While construction stocks are currently experiencing a slump due to weakened expectations for Middle East reconstruction and nuclear power, attention is focused on whether the major nuclear power events scheduled for the second half of the year and government support policies will lead to an improvement in investor sentiment. The market is closely watching whether these positive prospects will translate into actual order wins and positively impact construction stock prices.