Hedge funds turn to South Korea for next wave in AI
Hedge funds are turning to South Korea's chipmakers, betting on increased demand for high-end memory chips and government incentives according to Reuters. Britain’s Man Group, Singapore’s FengHe Fund Management, and Hong Kong’s CloudAlpha Capital Management and East Eagle Asset Management are targeting giants like SK Hynix and Samsung Electronics, which have lagged behind in the sector's rally.
“If Nvidia is the king of the AI story, then Hynix is the queen,” - Matt Hu
Chief investment officer at FengHe, which has invested in Hynix and Samsung this year. Investors believe the AI boom that tripled Nvidia’s value has overlooked stocks like Hynix compared to Taiwan’s TSMC. Attention is shifting to South Korean chipmakers as tech firms secure high-bandwidth memory (HBM) chips, primarily produced by Hynix, Samsung, and U.S.-based Micron Technology.
Hynix, the leading supplier of advanced HBM memory chips to Nvidia, trades at nine times its 12-month forward earnings, compared to TSMC’s 23 times. The South Korean government’s 26 trillion won ($19 billion) support package for the chip industry and the new 'Corporate Value-up Programme' are also favourable. The influx of hedge fund investments boosted the KOSPI index, which saw its best performance in seven months in June. South Korean stocks recorded the highest inflows among Asian emerging markets this year, the largest since 2008, according to LSEG data. Despite risks like a depreciating won and local short-selling restrictions, hedge funds see significant potential.
Samsung and Hynix make up about 30% of the KOSPI by market capitalization. While Hynix shares have risen over 70% this year, Samsung is up only 12%, and the overall KOSPI nearly 9%. A shortage of broader memory chips has bolstered South Korean suppliers, with Samsung reporting a more than 15-fold rise in second-quarter operating profit due to rising chip prices. Sumant Wahi, a portfolio manager at Man Group, anticipates rising prices for traditional Dynamic Random Access Memory (DRAM) chips as capacity shifts to manufacturing HBM. Pierre Hoebrechts of East Eagle Asset Management expects Samsung to catch up in the second half, given its underperformance compared to TSMC this year.
Beyond chipmakers, Chris Wang of CloudAlpha Capital Management invested in electricity equipment maker HD Hyundai Electric, whose shares surged 333% since January, betting on increased power consumption. Simon Woo of BofA Securities noted that Korea could expand sales of semiconductor equipment, cooling systems, and consumer electronics within the AI ecosystem. Additionally, the ongoing Sino-U.S. technology war ensures China continues to use South Korea’s advanced memory chips due to U.S. export bans on Chinese competitors.