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As Music Stocks Keep Slipping, This One K-Pop Company Is Bucking the Trend

Since Sept. 12, SM Entertainment shares are up 13.9% while the Nasdaq is off 6.9% and the S&P 500 is down 6.2%.

South Korean music company SM Entertainment, home to such groups as NCT 127 and SuperM, stands apart in a competitive music business for withstanding stock market downturns that have hit all other publicly-traded music companies.  

Since December, stocks have been on a downward trend, sparked by the Federal Reserve’s intention to raise the federal funds rate to prevent the economy from overheating and rein in inflation. And while music is often said to be recession-proof, music companies’ stocks are not immune from larger economic trends and investors’ desires for safer options during chaotic times. Even though the global music industry is posting double-digit revenue growth, the share prices of publicly traded music companies have followed the broader trends and stumbled in the face of interest rate hikes, inflation, labor shortages and supply chain headaches.

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After a weeklong rally stock markets plummeted last Tuesday (Sept. 13), following a consumer price index report that showed annual inflation was 8.3% in August. Expecting an aggressive move from the U.S. Federal Reserve Bank, investors sent the Dow Jones Industrial Average down 3.9%, its worst day since June 2020, and the Nasdaq down 5.2%.  

Stocks that were trending up have been shaken. Shares of Universal Music Group and Warner Music Group, the world’s largest and third-largest music companies, dropped 8.7% and 10.4%, respectively, since Sept. 12. Satellite radio company SiriusXM, which also owns music streaming service Pandora and podcast platform Stitcher, dropped a modest 4.2%. IHeartMedia, the largest U.S. radio broadcaster, fell 7.1%. Spotify, the world’s largest music streaming company, dropped 12.6%. 

SM Entertainment is an exception, however. The company’s shares are up 13.9% since Sept. 12, when a U.S. consumer price index report sent stocks reeling. Year to date, the company’s shares have risen 3.1%. On Friday (Sept. 16), SM Entertainment shares jumped 19% after the company announced it would terminate a production contract with Like Planning, a company owned by SM Entertainment’s founder, Lee Soo-man, and admitted that “some shareholders” had demanded that Lee step down from his role. Share prices have held steady since.  

South Korean music stocks generally have fared well over the week and have outperformed their Western peers in 2022. From Sept. 12 to Tuesday, HYBE (BTS, Tomorrow X Together) fell just 0.3%, while JYP Entertainment (Stray Kids, Twice) declined just 1.1%. HYBE’s share price is down 54.9% in 2022 due to the members of BTS pursuing solo projects, though JYP Entertainment shares are up 22.9% year to date. Another South Korean stock, YG Entertainment (Blackpink), has fallen 9.3% since Sept. 12 but is down just 6.8% in 2022. 

Overall, South Korean stocks have outperformed other stocks in the U.S. and the Netherlands. The Korean Stock Exchange Composite (KOSPI) is down 0.7% since Sept. 12, during which time the Nasdaq dropped 6.9%, the NYSE fell 5.7% and the S&P 500 dipped 6.2%. The AEX Index, an index of companies – including Universal Music Group – that trade on the Euronext Amsterdam, is down 5.1% since Sept. 12. 

In the U.S., the Federal Reserve is meeting Tuesday (Sept. 20) and Wednesday to decide whether to raise the federal funds rate. Widespread speculation calls for the Fed to announce a 0.75 percentage point rate increase – its third three-quarter rate hike since June. The Fed also raised its federal funds rate by 0.25 percentage points on March 16 and 0.50 percentage points on May 5. Based on the turmoil over the past week, the market has already reacted to what it expects to be a considerable rate increase.