By Summer Jane
HONG KONG (Reuters) – Hedge funds looking for artificial intelligence-related stock market bargains are increasingly targeting South Korean chipmakers, betting on a new wave of demand for advanced memory chips. And government spending is making them more valuable.
Britain's Main Group, Singapore's Feng He Fund Management and Hong Kong's Cloud Alpha Capital Management and East Eagle Assets are among the hedge funds seeking exposure to AI in Asia, along with South Korea's SK Hynix and Samsung Electronics ( Looking forward to KS 🙂 So far, the sector's rally has lagged behind.
“If we consider Nvidia (NASDAQ: ) the king of the AI ​​story, then Hynix is ​​the queen,” said Matt Hu, chief investment officer of $4 billion FengHe, which is buying Hynix and Samsung this year.
FengHe and other hedge fund investors believe the AI ​​frenzy over the past year, which has boosted the value of Nvidia's U.S.-listed shares to more than $3 trillion, has led to better-known Asian AI players such as Taiwan's TSMC. Competitors outperformed stocks like Hynix.
But the spotlight is turning to South Korean chipmakers as technology firms race to secure high-bandwidth memory (HBM) chips in the generative AI race, primarily from Hynix, Samsung and US-based Micron Technology ( Developed by NASDAQ 🙂
Hynix is ​​the top supplier of high-end HBM memory chips to Nvidia. FengHe's Hu estimates that Hynix gets a larger share of its revenue from Nvidia than TSMC, but Hynix trades 23 times more for TSMC than its 12-month forward earnings.
There are other broader tailwinds for these shares, such as the South Korean government's 26 trillion won ($19 billion) aid package for the chip industry and its new 'corporate value-up program', similar efforts in Japan and China. with. Improve shareholder returns.
A rush of hedge fund cash into South Korea's AI sector helped the benchmark index register its best month in seven months in June. South Korean stocks attracted the strongest inflows in Asia's emerging markets so far this year, and their biggest since 2008, according to LSEG data.
Hedge funds say the rewards of investing in South Korea outweigh the major risks, namely pressure from falling Korean earnings and restrictions on short selling of shares in the local market.
The KOSPI is trading at 10 times 12-month forward earnings, compared to 18 times for Taiwan and 15 times for Japan.
More memory
Samsung and Hynix account for about 30% of the KOSPI in terms of market capitalization.
While Hynix shares are up more than 70% this year, Samsung is up just 12% and the KOSPI is up about 9%.
In addition to HBM chips, supply shortages of broader memory chips have bolstered South Korean suppliers. Samsung said last week that it expects second-quarter operating profit to grow more than 15 times thanks to rising chip prices.
Sumant Wahi, portfolio manager at Maine Group, focusing on technology stocks, expects prices of traditional dynamic random access memory (DRAM) chips to also rise as the chip industry shifts more capacity to HBM production. have done.
“There's definitely an opportunity there,” he said.
Pierre Hobrechts, head of macro research at East Eagle Asset Management, expects Samsung to pull ahead in the second half due to its significant underperformance against TSMC this year.
The South Korean AI theme is also moving beyond chip makers. Chris Wang, a portfolio manager at tech-focused CloudAlpha Capital Management, has invested in electric equipment maker HD Hyundai (OTC: ) Electric this year, betting the stock will benefit from rising electricity consumption. Its shares have gained 333% since January.
“Korea has the potential to sell more semiconductor devices, cooling systems and even consumer electronics, along with a growing AI ecosystem,” said Simon Wu, Asia-Pacific technology research coordinator at BofA Securities.
Wu added that the long-running Sino-US technology war also ensures that China continues to use South Korea's advanced memory chips, as Chinese chipmakers have so far been unable to compete under US export restrictions. have been unable.