As negotiations for U.S.-Korea strategic investments conclude, the outline for the first major investment is expected to emerge this week. Among the prominent candidates are the Enchinal gas combined cycle power plant in Texas and eight new large nuclear power plants, leading to a surge in construction stocks in the capital market. Analysts suggest that the anticipation surrounding construction stocks has already been factored in, indicating a potential for differentiated performance among individual stocks as investment projects become more concrete.
According to the Korea Exchange (KRX), the KRX Construction Index rose by 9.44% from September 1 to 11, significantly outpacing the KOSPI's average increase of 1.32% during the same period. The KRX Construction Index is based on the Global Industry Classification Standard (GICS) and is composed of major stocks in the domestic construction sector weighted by market capitalization. Key companies included in the index are Hyundai Engineering & Construction, Samsung E&C, Daewoo Engineering & Construction, and GS Engineering & Construction.
In terms of specific gains, Daewoo Engineering & Construction saw the largest increase of 9.35% over the nine trading days in September, followed closely by Hyundai Engineering & Construction at 9.41%, Samsung E&C at 8.28%, and GS Engineering & Construction at 6.06%. This upward trend contrasts with the KOSPI's stagnation amid rising international oil prices and interest rate concerns.
The recent rise in construction stocks is attributed to heightened expectations for power plant construction contracts, as the South Korean government has identified nuclear power and other projects as the first initiatives under the strategic investment agreement signed with the U.S. last year.
On September 7, the Ministry of Trade, Industry and Energy reported in a closed-door meeting that it is considering the construction of the Enchinal gas combined cycle power plant in Texas as the first project under a $350 billion strategic investment initiative. Other major investment candidates include eight nuclear power plants and an Alaska LNG project.
In this context, Minister of Trade, Industry and Energy Kim Jeong-kwan met with U.S. Secretary of Commerce Gina Raimondo and others in New York from September 10 to 12 to finalize negotiations regarding the scope, scale, and conditions of the U.S. investment projects. Minister Kim returned to Incheon International Airport on the afternoon of September 13 and plans to report the results of the negotiations to the National Assembly on September 17. The industry anticipates that the specific details of the investment projects will be revealed as early as the end of this week.
Market analysts caution that while expectations have already been priced into construction stocks, subsequent investments should be approached with caution. The structure of the construction industry in the U.S. differs from that in South Korea, and risks will vary based on factors such as whether domestic companies participate in joint EPC (engineering, procurement, and construction) arrangements with U.S. firms, the equity participation ratios among companies, and the scope of direct purchases from major equipment suppliers. In particular, the Alaska LNG project poses significant uncertainties regarding cost recovery due to its high technical challenges and astronomical initial costs associated with construction in polar regions.
A securities industry representative stated, "The main issue for the construction sector in September is the visibility of the U.S. investment projects. However, since expectations for contracts have already been factored into stock prices, actual contract sizes and anticipated profitability will likely lead to significant volatility in stock prices as projects progress. Therefore, caution is advised for subsequent investments."
* This article has been translated by AI.
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