Korea’s Hyundai may not produce the coolest cars on the road, but its equity is hot. Shares in Hyundai Motor, which together with affiliate Kia Motors Corp is the world’s sixth largest automaker by sales, have risen 21 per cent in the past month, comfortably outperforming the broader stock market.

This is curious for all sorts of reasons. Car manufacturers are not an obvious choice for investors when raw material costs are rising. Korea’s Posco, the world’s fourth biggest steelmaker, last week raised its prices by up to 21 per cent. Since steel accounts for 5 per cent of Hyundai’s sales price, a 20 per cent rise in steel costs – all else being equal – adds an additional 1 per cent to the car bill. But the real blemish for Hyundai Motor appears on the balance sheet – the legacy of rescuing Kia. On a consolidated basis, Hyundai Motor has a net debt/equity ratio of 126 per cent, up from 103 per cent in 2006. Hyundai Motor has succeeded in cranking up profits but has been less successful at generating cash. Operating free cash flow, negative for the seventh year in a row, was about -$1.2bn in 2007, according to Goldman Sachs.