AI ‘Euphoria’ and EV bets accelerate South Korea’s market

South Korea’s $1.8tn stock market is headed into bull market territory, as foreign investors pile into AI stocks and local investors snatch up EV battery-related stocks.

The tech-heavy Kospi has jumped 18 per cent this year, joining the surge of other indices in the sector, including Japan’s Topix and Taiwan’s TiEx, which have gained largely for chipmaker stocks.

In contrast, Chinese shares have been falling on doubts about its economic recovery, with Hong Kong’s Hang Seng down 2 percent this year and the CSI 300, China’s main benchmark of onshore listed companies, down 1 percent.

Global funds bought a net Won12tn ($9.5bn) of Korean shares this year after a three-year hiatus, spending about Won10.5tn on Samsung Electronics stock.

The rally has been driven by technology hardware exporters amid concerns over the impact of the US Fed’s rate-hike easing cycle as foreign investors return to emerging markets. It follows a dark trail last year, triggered by rate hikes, high inflation and South Korea’s slowing economy.

Samsung Electronics, which accounts for more than 20 percent of the Kospi index, is the biggest contributor, rising nearly 40 percent from September’s low.

Fellow chipmaker SK Hynix also posted the second biggest boost as foreign investors bet the global AI race will boost demand for the chips following the launch of ChatGPT in November and Nvidia’s recent rally.

“AI-related enthusiasm served as a trigger for chip makers to rally on top of rising expectations for an industry rebound in the second half,” said Lee Chae-Won, president of Life Asset Management.

Local investors are buying shares of companies that are part of the EV supply chain. Korean battery producers and makers are expected to benefit from the rapidly expanding global EV market and the US Inflation Reduction Act, which aims to curb China’s control of the green energy sector.

The world’s second-biggest battery maker LG Energy Solutions has gained 38 per cent so far this year, while steelmaker Posco Holdings, whose subsidiaries have made a series of upstream investments in the global battery supply chain, has gained 42 per cent. happened.

Shares of the country’s four biggest K-pop agencies – Hyebe, SM Entertainment, YG Entertainment, JYP Entertainment – have gained at least a third this year, more than doubling Kospi’s gains, and Universal Music Group and Warner Bros. As global recording labels are doing better. music Group.

“There are still some macroeconomic risks, but investors seem to think the worst is over,” said James Lim, an analyst at US hedge fund Dalton Investments. “They tend to fall into secular, structural growth sectors regardless of the economic cycle, such as batteries, AI and entertainment.”

Lim said Korean stocks still remain broadly cheap, with the Kospi index trading at a multiple of one times compared to two times for Taiwan’s Taidex and Japan’s Nikkei indexes, and more than four times for the US S&P 500 index. With a lower price-to-book ratio. ,

But analysts also cautioned that Samsung Electronics and SK Hynix, which both produce advanced memory chips in China, have been caught up in an intensifying technological rivalry between Washington and Beijing.

In a recent note, analysts at Fitch Ratings argued that the credit profiles of the two chip makers could “absorb” recent measures including US export controls on advanced chip technology and a Chinese ban on chips made by US rival Micron.

However, he acknowledged that “more stringent regulations or sanctions” could affect the ratings of Samsung and SK Hynix.

Choi Joon-chul, head of VIP Research & Management, also argued that “some battery-related stocks are overshooting their fundamentals,” noting that they were driven by demand from enthusiastic Korean retail investors.

“Foreign funds are coming back into the market after a massive selloff last year,” Li said. “But without fundamentals improving, there is a limit to this technical rebound.”