Building the ETF, surged 115.96% since the beginning of the year... returns surpassing semiconductor and crude oil ETFs

This year, in the Korean listed index fund market, the construction sector has shown stronger upward momentum than semiconductors, and it has actually swept the top spots on the return-rate leaderboard.

On the 19th, according to ETF Check data from the Korea Securities Information Service, based on the 17th of this month, the average return rate this year of two construction ETFs listed on the Korean stock market was 115.96%. This means that within about 100 days since the beginning of the year, their prices more than doubled. The KODEX Construction ETF rose from 4,115 won at the end of last year to 9,045 won, recording a 119.8% return; the TIGER 200 Construction ETF also climbed from 4,625 won to 9,810 won, achieving a 112.1% return. This level exceeds the average 75.43% increase of two crude oil ETFs that surged last month due to the impact of the U.S.-Iran war, as well as the average 73.89% increase of 29 K-semiconductor related ETFs.

The background for construction ETFs strengthening is that the market has started to no longer view construction companies as purely assets related to the domestic residential market cycle, but rather as assets that simultaneously reflect energy and infrastructure demand. Until last year, these ETFs were still in the 3,000-won range and did not receive much attention; however, this trend changed this year as large construction companies came into the spotlight as beneficiary stocks related to nuclear power. Then, after the Iran war broke out in March, with expectations for Middle Eastern reconstruction added on top, stock prices surged rapidly again. In fact, since the beginning of this year, Daewoo Construction’s stock price has risen by 651%, Hyundai Engineering & Construction by 154%, DL E&C by 137%, and Samsung Engineering by 109%.

Looking at the ETF constituent stocks, it becomes clearer what expectations the market is reflecting. As of the 17th, in the KODEX Construction ETF, Hyundai Engineering & Construction has the highest weighting at 23.09%, followed by Samsung Engineering at 18.02% and Daewoo Construction at 15.14%. In addition, it also includes Han Electric Technology at 9.51%, DL E&C at 7.81%, GS Construction at 6.81%, and others. The TIGER 200 Construction ETF also has relatively high weightings for Hyundai Engineering & Construction at 26.26%, Samsung Engineering at 16.50%, and Daewoo Construction at 13.62%, and includes Samsung C&T at 12.65%, Han Electric Technology at 8.58%, DL E&C at 7.04%, GS Construction at 6.12%, KCC at 5.65%, and others. Its defining characteristic is that it centers on companies with capabilities in nuclear power, factories, and design·procurement·construction (EPC, turnkey execution of large infrastructure projects).

Fund inflows are also increasing rapidly. Since the beginning of this year, the KODEX Construction ETF has received 130.6 billion won in inflows, of which 61.4 billion won came in within the most recent week. The TIGER 200 Construction ETF has also received 94.8 billion won in inflows this year, with 43.1 billion won flowing in just within the most recent week. This is interpreted as investors’ expectations not having faded even after the sharp rise in the short term. A researcher at Korea Investment & Securities, Kim Seung-joon, said that after the ceasefire news was reported, as expectations for Middle Eastern reconstruction strengthened, construction stocks with design·procurement·construction capabilities surged significantly, and he judged that regardless of how long the negotiation period lasts, the reconstruction of oil and gas facilities after the war is an established process. An analyst at iM Securities, Bae Se-ho, also based his view on reasons including the expansion of global nuclear power orders, the possibility of participating in U.S. infrastructure construction related to investment with Korea-U.S., and Middle Eastern reconstruction demand after the Iran war, and said that the price-to-book ratio (P/B, the level of a stock price relative to net assets) of construction companies still has ample room to rise.

Ultimately, this year’s surge in construction ETFs is less a result explained solely by traditional real estate cycle expectations, and more a result of multiple themes—nuclear power, energy, Middle Eastern reconstruction, and U.S. infrastructure investment—being reflected together. However, due to the influence of war and diplomatic negotiations, as well as shifts in international energy markets, short-term volatility may increase. In the future, this trend may determine whether there is further upside depending on how overseas order results actually play out and how specifically reconstruction project tenders are finalized.