Domestic construction stocks are surging on the possibility of a ceasefire between the U.S. and Iran. This comes as expectations grow that South Korean construction companies could see expanded overseas business as they are deployed to rebuild infrastructure in war-torn Middle Eastern regions.
◇ Construction Stocks Surge on Ceasefire Hopes
According to the Korea Exchange on the 27th, the KRX Construction index rose the most by 8.33% among sectoral stock indices from the 20th to the 26th of the same month. During the same period, the KOSPI fell by 0.6% from 6,852.58 to 6,808.21, showing a "boxed" movement. Notably, while the KRX Semiconductor and KRX Information Technology indices, which had driven the domestic market's strength, declined by 1.75% and 1.79% respectively, construction stocks were credited with supporting the index.
By stock, Hyundai Engineering & Construction surged by 14.59%, recording the highest gain among construction stocks. This was followed by Daewoo Engineering & Construction (14.3%), GS Engineering & Construction (6.18%), and DL E&C (2.95%), with major construction stocks across the board showing strength.
The sharp rise in construction stocks came as the possibility of a ceasefire between the U.S. and Iran emerged. On the 25th (local time), Russia's state-run RIA Novosti cited Iranian security agencies and Pakistani military sources, reporting that a ceasefire between the two countries had been agreed upon, allowing for free navigation through the Strait of Hormuz. Pakistan's Interior Minister Mohsin Naqvi, who has been mediating negotiations between the U.S. and Iran, stated on social media X (formerly Twitter) after meeting with Iranian leadership on the 24th, "Significant progress has been made," adding, "I hope this momentum will help pave the way for further progress and lasting peace in the region." As voices grew that the U.S. and Iran could announce a ceasefire soon, South Korean construction companies, seen as potential beneficiaries of Middle Eastern reconstruction, came into the spotlight.
◇ Domestic Mega Projects Gain Momentum
Domestically, mega projects such as the construction of semiconductor complexes in the Honam region by Samsung Electronics and SK Hynix are also factors boosting expectations for construction stocks. This is because demand is expected to increase not only for factories but also for related infrastructure, including nuclear power plants for electricity supply and AI (artificial intelligence) data centers.
Kim Seon-mi, a researcher at Shinhan Securities, stated, "While stock volatility in the construction sector has increased, upside potential continues to expand more than downside risks." She added, "Not only is there potential for domestic nuclear power projects to expand, but mega projects such as the power supply agreement for the Honam semiconductor industrial complex, Samsung Electronics' production line orders, and GS Group's November groundbreaking for an AI data center are accelerating faster than expected."
Particularly, data centers are analyzed to become a "cash cow" driving construction companies' performance. Kim Seung-jun, a researcher at Hana Securities, noted, "Data centers remain the most effective upward driver even in the second half of the year." He added, "News about GS Group's East Sea AI data center is expected, and DL E&C is also anticipated to secure a data center project worth 2 trillion Korean won in the second half."
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