While South Korea's stock market has been rebounding, entertainment stocks have struggled to escape their slump, dragging related exchange-traded funds (ETFs) into a string of losses. With much of the upside from major artists resuming activity now priced in, the market's attention has shifted to whether next-generation intellectual property (IP) can deliver growth, prompting brokerages to successively cut target prices for leading entertainment companies.
According to the Korea Exchange (KRX), among domestic ETFs excluding leveraged and inverse products, the worst performer last week (the 10th to the 14th) was the TIGER Media Contents ETF, which returned -5.56%. The ACE KPOP Focus (-4.65%) and HANARO Fn K-POP & Media (-4.35%) also ranked near the bottom. Widening the view to year-to-date, all three funds posted returns in the negative 40% range, pointing to a prolonged downturn.
The funds' weakness directly reflects the joint decline of the major entertainment stocks they hold in large weightings. Last week, JYP Entertainment plunged 12.29%, while HYBE (-3.02%), SM Entertainment (-2.91%) and YG Entertainment (-1.20%) all fell as well. That stands in contrast to the KOSPI and KOSDAQ, which rose 11.49% and 8.24%, respectively, over the same period. Risk appetite has revived across the broader market, but the warmth has not reached the entertainment sector. "Entertainment stock prices are currently at the lower end of their valuation range," said Choi Yong-hyun, an analyst at KB Securities.
Analysts' expectations have been falling quickly, particularly through the August earnings season. JYP, which reported a sharp earnings miss, was the subject of 13 reports cutting its target price over just two days on the 13th and 14th of this month. Second-quarter revenue on a consolidated basis was 183.1 billion won, down 15% from a year earlier, while operating profit fell 41% to 31 billion won. The results were hit by a gap in Stray Kids' touring, combined with higher content production costs and the recognition of fan kit expenses.
What the market reacted to more sensitively than current earnings was the medium- to long-term uncertainty surrounding JYP's two core IPs. "Given the possibility that Twice members will expand their individual activities after re-signing their contracts, group activity has to be assumed more conservatively than a year earlier," said Hwang Ji-won, an analyst at iM Securities. "Factoring in the sequential military enlistment of Stray Kids members within two years as well, a downward adjustment to the multiple is unavoidable."
HYBE, buoyed by the effect of BTS reuniting as a full group, posted second-quarter revenue of 1.45 trillion won and operating profit of 170.9 billion won, both quarterly records. Still, now that the sector's most anticipated catalyst has materialized, the market's gaze is moving to the period after the comeback. Earlier, right after BTS resumed full-group activity in April this year, profit-taking emerged amid a sense that the gains had already been priced in on expectations, widening volatility for entertainment stocks and related ETFs. Whether next-generation groups such as Cortis and Katseye can establish themselves as the next axis of growth is seen as the key to any future re-rating of the shares.
SM Entertainment and YG Entertainment could not avoid downward revisions despite strong results either. SM's second-quarter revenue and operating profit rose 15% and 11%, respectively, but concerns emerged over a gap in second-half earnings, as world tours for its major groups are expected to resume late this year or early next year. YG Entertainment also saw revenue and operating profit climb 22.7% and 31.2%, respectively, but two brokerages, LS Securities and Kyobo Securities, lowered their target prices, reflecting the broader weakening of investor sentiment toward the sector.
"This is a point where the sector needs a catalyst to turn around the sentiment unique to entertainment stocks," said Lim Su-jin, an analyst at Kiwoom Securities. "The market appears to be in a phase of searching for new catalysts that would improve visibility for growth in 2027 and 2028, rather than earnings confirmed right now, and verifying their credibility."
