South Korea’s chipmakers have become the new favorite among hedge funds, who are betting big on their potential to profit from the growing demand for high-end memory chips and government support. Prominent funds such as Man Group, FengHe Fund Management, CloudAlpha Capital Management, and East Eagle Asset Management are targeting South Korean giants like SK Hynix and Samsung Electronics.
AI Demand and Investment Strategy
According to Matt Hu, chief investment officer of FengHe, which has been acquiring Hynix and Samsung stocks this year, "If we consider Nvidia the king of the AI story, then Hynix is the queen." Hedge funds believe that the AI boom that tripled Nvidia’s stock value has left opportunities in South Korean chipmakers. Technology firms in the AI race are increasingly seeking high-bandwidth memory (HBM) chips, primarily produced by Hynix, Samsung, and Micron Technology.
Why South Korea?
South Korea’s dominant position in the global memory market is a key factor in attracting hedge funds to invest in its chipmakers. Hynix, the leading supplier of HBM memory chips to Nvidia, is trading at nine times its 12-month forward earnings compared to TSMC’s 23 times. The South Korean government’s $19 billion support package for the chip industry and the new ‘Corporate Value-up Programme’ are additional growth drivers.
Market Performance and Valuation
The KOSPI index achieved its best month in seven months in June, thanks in part to these factors. Despite risks like a depreciating won and short-selling restrictions, the potential rewards attract hedge funds. The KOSPI is trading at 10 times 12-month forward earnings, compared to Taiwan’s 18 times and Japan’s 15 times.
Samsung and Hynix: Market Leaders
Samsung and Hynix together account for about 30% of KOSPI’s market capitalization. Hynix shares are up over 70% this year, while Samsung has risen only 12%, and the overall KOSPI nearly 9%.
Broader AI Ecosystem
The scarcity of broader memory chips has further benefited South Korean suppliers. Samsung projected a more than 15-fold rise in its second-quarter operating profit due to rising chip prices. Hedge funds also see opportunities beyond chipmakers.
Investing Beyond Chipmakers
Chris Wang, portfolio manager at CloudAlpha Capital Management, invested in HD Hyundai Electric, which benefits from increased power consumption. Its shares have surged 333% since January. This demonstrates the broader AI ecosystem’s potential for growth and investment opportunities beyond traditional chipmakers.
Impact of Sino-U.S. Technology War
The ongoing Sino-U.S. technology war ensures continued demand for South Korea’s advanced memory chips from China, as Chinese chipmakers struggle under U.S. export bans, according to Simon Woo of BofA Securities. This development has created a stable market for South Korean chipmakers and increased their appeal to hedge funds.
Government Support
The South Korean government’s support package for the chip industry has also contributed to the growth of its chipmakers. The ‘Corporate Value-up Programme’ is aimed at improving corporate governance and value creation, further boosting investor confidence in South Korea’s chipmakers.
Conclusion
South Korea’s chipmakers have become a hotspot for hedge funds, driven by their potential to profit from the AI boom and government support. With a dominant position in the global memory market and a strong growth trajectory, these chipmakers are attracting significant investment. As the demand for high-end memory chips continues to grow, South Korean chipmakers are poised to reap the benefits of this trend.
Key Takeaways
- Hedge funds are increasingly investing in South Korea’s chipmakers, betting on their potential to profit from the AI boom and government support.
- The scarcity of broader memory chips has further benefited South Korean suppliers.
- Samsung projected a more than 15-fold rise in its second-quarter operating profit due to rising chip prices.
- Hedge funds also see opportunities beyond chipmakers, investing in companies that benefit from increased power consumption.
Recommendations
Investors looking to capitalize on the growing demand for high-end memory chips should consider allocating a portion of their portfolio to South Korean chipmakers. With a strong growth trajectory and government support, these chipmakers are poised to continue their upward trend. However, investors should also be aware of the risks associated with investing in the technology sector, including the potential impact of trade wars and regulatory changes.
Additional Reading
For more information on the topic, readers may want to consider the following resources:
- "The AI Boom: How South Korean Chipmakers Are Riding the Wave" by Simon Woo of BofA Securities
- "Hedge Funds Flock to South Korea’s Chipmakers for AI Boom" by Bloomberg
- "South Korea’s Chip Industry: A Growth Story in the Making" by The Korea Times
