What’s going on here?
Hedge funds like Man Group and FengHe Fund Management are turning their gaze towards South Korean AI stocks, with giants SK Hynix and Samsung Electronics catching their fancy.
What does this mean?
South Korea’s chipmakers are becoming hedge fund darlings as the demand for AI-driving memory chips skyrockets. Man Group, FengHe Fund Management, CloudAlpha Capital Management, and East Eagle Asset Management have notably increased their investments in companies like SK Hynix and Samsung Electronics. While Nvidia dominates the AI space with its stock value tripling over the past year, funds are betting on the growth potential of these underperforming South Korean stocks, especially compared to Taiwan’s TSMC. The South Korean government’s hefty $19 billion support package for the chip industry and initiatives like the ‘Corporate Value-up Programme’ further sweeten the deal, driving investor interest.
Why should I care?
For markets: Navigating the waters of opportunity.
South Korean stocks have caught the eyes of international investors, evidenced by the KOSPI index’s 9% rise this year. With SK Hynix’s shares up over 70% and Samsung’s by 12%, the index saw its best June performance in seven months. Trading at 10 times 12-month forward earnings, South Korea offers attractive valuations compared to its regional peers, with Taiwan’s TWII at 18 times and Japan’s TOPX at 15 times. This trend is attracting strong inflows to South Korean stocks, marking the highest since 2008 among Asia’s emerging markets.
The bigger picture: Global tech winds blowing toward Korea.
The geopolitical landscape, particularly the Sino-US tech war, is bolstering demand for South Korean memory chips as Chinese companies struggle with US export restrictions. This ensures sustained demand from China, further boosting the prospects of companies like SK Hynix and Samsung Electronics. Moreover, South Korea’s chip sector isn’t the only beneficiary – firms like HD Hyundai Electric have also significantly gained, with a 333% stock surge this year, highlighting the expansive potential of South Korea’s AI sector beyond just chipmaking.