Hedge funds turn to Korea for next wave in AI

A dealer examines data displayed on multiple monitor screens at a dealing room in KEB Hana Bank in Jung District, Seoul, Wednesday. Yonhap

Hedge funds hunting for artificial intelligence-related stock market bargains are rushing into Korea’s chipmakers, betting a new wave of demand for high-end memory chips and government spending makes them more valuable.

Britain’s Man Group, Singapore’s FengHe Fund Management and Hong Kong’s CloudAlpha Capital Management and East Eagle Asset Management are among the hedge funds seeking AI exposure in Asia that are looking to Korean behemoths such as SK Hynix and Samsung Electronics, which have so far lagged the sector’s rally.

“If we consider Nvidia the king of the AI story, then Hynix is the queen,” said Matt Hu, chief investment officer of $4 billion FengHe, which has been buying Hynix and Samsung this year.

FengHe and other hedge fund investors believe the AI frenzy over the past year that trebled the value of U.S.-listed Nvidia’s shares to more than $3 trillion has left behind stocks such as Hynix relative to more popular Asian AI players such as Taiwan’s TSMC.

But the spotlight is turning to Korean chipmakers as technology firms in the generative AI race scurry to secure high-bandwidth memory (HBM) chips manufactured primarily by Hynix, Samsung and U.S.-based Micron Technology.

Hynix is the top supplier of advanced HBM memory chips to Nvidia. FengHe’s Hu estimates Hynix receives a larger proportion of its revenue from Nvidia than TSMC does, but Hynix trades at 9 times its 12-month forward earnings versus 23 times for TSMC.

There are other broader tailwinds to these shares, such as the Korean government’s 26 trillion won ($19 billion) support package for 한국을 the chip industry and its new “Corporate Value-up Programme,” along the lines of similar efforts in Japan and China to improve shareholder returns.

The rush of hedge fund cash into Korea’s AI sector helped the benchmark KOSPI index register its best month in seven months in June. Korean stocks attracted the strongest inflows among Asia emerging markets so far this year, and their biggest inflows since 2008, according to LSEG data.

The rewards of being invested in Korea outweigh the big risks, hedge funds say, namely pressure from a depreciating Korean won and restrictions on short-selling of shares in the local market.

KOSPI is trading at 10 times 12-month forward earnings, compared with Taiwan’s 18 times and Japan’s 15 times.

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