Fourth Week of February 2021
2021.02.22.
□ Liquidity in the United States, the eurozone, Japan, and Korea increased by KRW 7,350 trillion last year—up KRW 4,200 trillion in the United States, KRW 2,000 trillion in the eurozone, KRW 870 trillion in Japan, and KRW 280 trillion in Korea—highlighting the severe disconnect between financial markets and the real economy … if the asset bubble bursts, a second shock could follow.
▶ When the stock market kept rising, they were calling for 3,500 for KOSPI; after just a few down days, now they are talking about a second shock.
□ China’s Ministry of Industry and Information Technology sets rare-earth supply for the first half of this year at 84,000 tons (YoY +27.6%).
□ Samsung Electronics says, “Foundry orders are backed up for more than a year," and decides to bring forward the launch of a new foundry line at its Pyeongtaek plant in Gyeonggi … 8-inch foundry prices for automotive chips are expected to rise 10-15%.
□ The number of Chinese tourists visiting Korea last month fell 98.5% from a year earlier, and among 67 first-floor commercial units between the entrance to the Myeong-dong retail district and Exit 4 of Myeong-dong Station, 34 were either closed or vacant … vacancy rates in major business districts such as Sinchon, Itaewon, Gangnam, Myeong-dong, and Gwanghwamun have nearly doubled within a year. Key-money premiums that had reached hundreds of millions of won have fallen to zero, while foreign apparel chains such as Uniqlo and H&M withdrew one after another last year.
□ Hanwha defense affiliates Hanwha, Hanwha Defense, and Hanwha Systems take part in IDEX 2021, the largest defense exhibition in the Middle East … they are set to operate an integrated exhibition hall covering defense robots, ground equipment, and defense electronics.
□ A research team from the Korean Intelligent Information Systems Society evaluates 94% of government AI projects as suffering from “vague objectives, poor technical understanding, and excessive packaging."
▶ This was a commissioned project for the Ministry of the Interior and Safety. If that is the assessment they gave the client, the actual situation must be even worse.
□ Waste paper, now carrying premiums of tens of millions of won per 100 tons … following the “box shortage” before the Lunar New Year holiday, there may now be a “paper shortage."
▶ One cause is said to be the Ministry of Environment’s various restrictions on waste-paper imports, legislated over four- to five-month intervals last year. Waste paper accounts for more than 80% of paper products produced annually.
▶ Starting April 1, a law will also take effect under which paper manufacturers, the actual end users of waste paper, will no longer be allowed to import it, while only waste-treatment operators will be allowed to do so. Waste-sector beneficiaries?
□ With overseas travel restricted because of COVID-19, golf-club memberships rose 17.2-36.1% over two months as bookings increased and demand shifted toward alternative investments.
▶ Related stocks: Golfzon, New Beginnings, Namhwa Industrial, KMH, Cris F&C, and Castelbajac.
▶ Given what is happening in the apparel and textile sector, golfwear manufacturers may also be worth considering.
2021.02.23.
□ In the Central Committee’s “No. 1 Central Document," which sets out the Chinese government’s top policy priority, the Chinese Communist Party states that it will “promote modernization of agriculture and rural areas through rural revitalization” … major Chinese IT companies such as Alibaba, JD.com, and Huawei are increasing agricultural investment in line with the government’s policy of making food self-sufficiency the top priority.
□ Apple is shifting production out of China to reduce its exposure to the U.S.-China trade war … expanding manufacturing capacity in India and Vietnam.
□ Supercar brand Bugatti is acquired by Rimac Automobili, the Croatian EV company in which Porsche (15.5%) and Hyundai Motor (13.7%) hold stakes … the consideration is to be paid in shares rather than cash.
□ Democratic Party lawmaker Lee Sang-heon sponsors a bill to amend the Game Industry Promotion Act, requiring game companies to disclose the probabilities of random-item draws … a game-industry official says, “The only place that enforces this kind of regulation in full is China, a state-led planned economy."
▶ While saying they want to push “BBIG," they are regulating loot boxes, one of the industry’s main revenue models. Judging from his resume, he appears to be an old politician with little familiarity with computer games. He was assigned to the Culture, Sports and Tourism Committee, but he does not seem particularly close to the sector; he may simply have put his name on the bill as lead sponsor to build out his legislative record.
□ Chemical stocks, classic cyclicals, strengthen on the global recovery … supply disruptions caused by the U.S. cold wave are also acting as a short-term positive.
▶ Yesterday the articles were arguing that the disconnect between the real economy and financial markets was so wide that a second decline could follow, and today they are recommending cyclicals?
□ Food prices are rising one after another as international wheat prices surge … wheat, currently at USD 239 per ton, “could rise to USD 322 per ton because of drought in the U.S. Midwest."
▶ Food-sector beneficiaries?
□ Annual salaries for top-tier developers reach KRW 200 million, and for PhD-level personnel KRW 500 million … as digital transformation spreads and AI becomes generalized, developer pay is surging across IT, manufacturing, finance, distribution, and entertainment.
▶ The gap between average Silicon Valley compensation and that at major Korean companies has widened to as much as two to three times.
□ Exports of small tractors rise as home-improvement demand increases in North America … Tong Yang Moolsan posts record-high sales of KRW 713.3 billion (YoY +15.5%) and operating profit of KRW 29.8 billion (turned profitable in 2019; YoY +117.2%).
□ Sales of city and express buses were cut in half from a year earlier as COVID-19 reduced demand for public transport and tourism.
□ Hyundai Motor launches a Genesis subscription service that can be canceled after just one month with no penalty … monthly fees range from KRW 1.39 million to KRW 2.95 million depending on model (G70, G80, GV80, G90).
▶ Will this become a new revenue model as part of the subscription economy, or will it backfire by diluting the premium felt by existing owners?
□ SK Innovation sells half its stake in petrochemical subsidiary SK Global Chemical … the strategy is to reduce the weight of its traditional core oil-and-chemicals business while increasing the share of EV batteries and separators.
□ SsangYong Cement declares “coal-free management," the first in Korea’s cement industry … “By using waste plastic in place of bituminous coal, we will reduce bituminous-coal usage to zero by 2030."
□ Kakao affiliate Yanadoo begins IPO procedures with a target of listing next year … following disclosure of listing plans for Kakao affiliates such as KakaoPage, KakaoBank, and KakaoPay.
□ Samsung Fire & Marine Insurance CEO Choi Young-moo purchases KRW 170 million worth of company stock … “We have avoided one-off methods such as asset sales. We will focus on profitability-centered management with stronger fundamentals."
▶ Could this become the second high-profile insider buy signal after Hyundai Motor Group Chairman Chung Eui-sun?
□ Macrogen signs a joint research agreement with U.S. firm Lifex Biolab on a Parkinson’s treatment.
□ Celltrion, led by Remsima, which ranked first in the European autoimmune-treatment market with a 52.8% share, posts record results again in 2020 with revenue of KRW 1.85 trillion and operating profit of KRW 712.1 billion … though it fell somewhat short of consensus KRW 1.87 trillion in revenue and KRW 773.2 billion in operating profit.
2021.02.24.
□ JPMorgan says, “This year global GDP will surge 7.6% on U.S. stimulus and a slowdown in the spread of COVID-19 in Europe."
□ Inflation concerns grow on expectations of a U.S. economic recovery and passage of a USD 1.8 trillion stimulus package … as the U.S. 10-year yield surges, the Nasdaq plunges.
▶ Korea’s 10-year Treasury yield also reaches 1.92%, the highest since April 2019.
□ Goldman Sachs says, “KOSPI earnings momentum is clearly improving … we expect 3,700 (after raising the target by 500 points)."
□ In the domestic equity market, reopening and cyclical stocks strengthen as bond yields rise.
□ Bank of Korea Governor Lee Ju-yeol says, “Cryptocurrencies are assets with no intrinsic value. Their prices have risen on the view that they can serve as a hedge against excessive inflation." … and also says, “We will faithfully perform our role in stabilizing the market, where large-scale government-bond issuance is scheduled."
▶ On the 23rd, Bitcoin fell KRW 8.6 million (13.6%) from its peak on the 21st to KRW 55 million.
□ Bank of Korea, “4Q20 Household Credit”: household credit increased by KRW 125.8 trillion last year (YoY +7.9%), the largest rise since 2016, reaching KRW 1,630.2 trillion … mortgage loans rose by KRW 67.8 trillion.
▶ Once rates begin to rise, this will be a direct hit.
□ The Ministry of Trade, Industry and Energy designates Yongin (semiconductors), Cheongju (secondary batteries), Cheonan (displays), and Jeonju (carbon materials) as specialized parts-materials-equipment clusters.
□ The Ministry of SMEs and Startups, in its “2021 Second Scheduled Fund-of-Funds Contribution Notice," plans to contribute KRW 500 billion together with Korea Venture Investment … the main investment targets are the Smart Korea Fund, regional New Deal venture funds, and M&A.
□ The fourth disaster-relief package is taking shape at around KRW 20 trillion, roughly double the original draft.
□ With cafés closed because of COVID-19, people are brewing coffee at home … convenience-store coffee and coffee-bean sales are rising.
□ Deutsche Bank says, “The U.S. airline industry is returning to normal." … U.S. airline and travel stocks surge across the board.
□ Lucid Motors, founded in the United States in 2007 and widely regarded as a “Tesla challenger," will list on the New York Stock Exchange in 2Q … at an implied valuation of KRW 26.6 trillion.
□ Motional, the joint venture between Hyundai Motor Group and U.S. autonomous-driving company Aptiv, obtains the world’s first certification for Level 4 driverless autonomous-driving technology.
□ Hyundai Heavy Industries sells part of its stake in subsidiary Hyundai Global Service, securing a KRW 800 billion war chest for investment in future businesses such as robotics, AI, and hydrogen.
□ SK Bioscience, which is set to list next month, is targeting KRW 1 trillion in annual sales over the long term on the strength of vaccine CMO work for AstraZeneca and Novavax, along with its own vaccine pipeline (cf. 2020 revenue: KRW 158.6 billion) … “Of the KRW 1 trillion to be secured through the listing, KRW 400 billion is to be invested in facilities, KRW 100 billion in platform technology, and KRW 150-200 billion in R&D."
□ Iljin Materials begins initial shipment of 2-micrometer ultra-thin material used in Samsung Electronics’ semiconductor back-end processes … Korea has now localized this semiconductor-grade ultra-thin material for the first time in ten years, after relying entirely on Japanese imports.
□ Vietnam, increasingly drawing attention from global fintech startups, aims to reduce the cash-usage ratio to 10% by 2025 … with bank-account penetration targeted to rise from 30% in 2014 to 90% by 2030.
2021.02.25.
□ U.S. President Joe Biden is set to sign an executive order excluding Chinese products from key materials and components for automotive semiconductors, EV batteries, and medical supplies … judging these to be directly tied to national security, he will instruct strengthened cooperation with allies and the development of a national strategy to reorganize the supply chain.
▶ By strengthening solidarity with semiconductor powers such as Korea, Japan, and Taiwan, the United States is seeking to induce a decline in China’s market share. Taiwan’s TSMC, now building a plant in Arizona with U.S. government support, is scheduled to mass-produce military semiconductors from 2024. Korean firms may also benefit?
□ Fed Chair Jerome Powell emphasizes continued monetary accommodation, saying “the United States is still far from recovery” … calming inflation fears as the U.S. 10-year closes at 1.37%, down 2bp.
□ At a Senate hearing, Powell says, “The digital-dollar project is a high priority. As the issuer of the reserve currency, the United States has a responsibility to issue digital currency properly." … U.S. Treasury Secretary Janet Yellen says, “It is reasonable for central banks to review issuing digital currencies."
▶ Will this become another reason for Bitcoin, still the bellwether of cryptocurrencies, to draw even more attention, or will the U.S. government’s digital currency become the new bellwether instead?
□ AstraZeneca cuts its scheduled 1Q21 deliveries to the EU from 90 million doses to less than half that, 40 million … as a vaccine supply shock could delay the economic reopening of European countries as well.
□ Statistics Korea, “2020 Birth and Death Statistics”: total fertility rate falls to 0.84, barely half the OECD average of 1.63 … the number of marriages declines 11% from the prior year and 30% from 2015.
▶ Those born in the 2020s will by around 2060 have to spend one-third of their income on pension contributions alone.
□ The Capital Markets Act is revised for the first time in six years, restructuring the private-fund system … private funds, previously divided into specialized-investor private funds (i.e. hedge funds) and management-participation private funds (i.e. PE), will be reorganized into institution-only and retail-only funds. Institution-only private funds will see greater autonomy through abolition of the “10% rule," while retail private funds will face tighter regulation.
□ The National Information Society Agency under the Ministry of Science and ICT issues a KRW 2.2 billion tender for a project to build an “intelligent epidemiological system using AI and CCTV images” to prevent the spread of COVID-19 … sparking privacy concerns.
▶ I have mentioned the CCTV + AI combination several times before: mass CCTV deployment, data accumulation, and the use of facial-recognition technology to identify and track people. This is essentially the kind of surveillance architecture used in China to identify and track dissidents.
▶ They say “the goal is to achieve herd immunity by November this year," but the “intelligent epidemiological system” (i.e. technology using facial recognition), supposedly “for COVID prevention," is to be introduced starting next year?
□ Gwangmyeong-Siheung in Gyeonggi Province will supply 70,000 homes and build a rail link to Seoul in 20 minutes … the sixth third-generation new town, covering an area 4.3 times the size of Yeouido.
▶ Completion is expected to take at least five to six years, so the short-term effect on stabilizing house prices will be limited, and the location is too weak to absorb demand for housing in Gangnam.
□ North Chungcheong Province pushes to build a KRW 250 billion advanced semiconductor industrial complex in Goesan by 2029.
□ The Korea Research Institute of Chemical Technology develops a key material that raises perovskite solar-cell efficiency to 25.2%, earning a cover article in Nature.
□ Samsung Electronics ranks first in global TV revenue for the fifteenth straight year … Samsung (31.9%) and LG (16.5%), which ranked first and second in global TV market share in 2020, together account for 48.4%, putting Korean companies far ahead.
□ The Presidential Committee on the Fourth Industrial Revolution, together with the Ministry of Science and ICT and the Ministry of Health and Welfare, announces the “strategy to activate the use of user-directed medical data," including a “My Health Record” app that will allow individuals to manage their medical information and medical histories in one place.
▶ Broad-based gains for the healthcare industry? Or a second boom in bio startups?
□ As patients who had postponed visits because of COVID-19 return to hospitals, earnings at medical-materials and equipment companies rebound quickly … 4Q20 operating profit: Osstem Implant +99.2% QoQ, Dentium +39.5% QoQ, Ray +187.5% QoQ, Corentec +185.7% QoQ.
□ Kakao Games, which raised KRW 390 billion through its September 2020 listing, is preparing to issue KRW 500 billion in convertible bonds for additional investment.
□ The Ministry of Land, Infrastructure and Transport reaches a tentative conclusion that the Hyundai Kona fire issue was due to “defects in LG battery cells," while LG Energy Solution responds that “the investigation, including the determination of the cause, has not been completed." … Hyundai Motor estimates the global recall cost at KRW 1 trillion.
2021.02.26.
□ Fed Chair Jerome Powell tells the House that “I am not concerned about the recent rise in Treasury yields. Forecasts that prices will soar because of stimulus and economic recovery are nothing more than overblown fears” … despite appearing before the Senate and House on back-to-back days and reiterating the continuation of an accommodative-rate stance, the bond market—still worried about early tightening—keeps pushing long-term yields higher.
▶ He has repeatedly stated that the long-term average inflation rate needs to exceed 2.0%. It is currently 1.4%.
□ Memory-chip exports rise 14.9% YoY, DDR4 breaks above USD 4 for the first time in 22 months (MoM +16.1%, YTD +23.6%), and server DRAM prices are expected to rise 10-15% … suggesting entry into a “supercycle” amid the semiconductor shortage.
□ At its policy meeting, the Monetary Policy Board leaves the base rate unchanged at 0.5% and maintains this year’s growth forecast at +3% … Bank of Korea Governor Lee Ju-yeol says, “Rising commodity prices and the pent-up effect of suppressed consumption bursting out over a short period could increase inflationary pressure, but with consumer inflation still in the 1% range, the situation is not one that warrants inflation concern."
□ Ministry of Economy and Finance, at the “Fifth Big 3 Innovation Growth Promotion Meeting," pushes to create KRW 650 billion in system-semiconductor and parts-materials-equipment funds … Samsung Electronics plans to invest KRW 133 trillion in system semiconductors by 2023.
□ Commercial banks accelerate the disposal of real estate, selling KRW 79.2 billion in 2019 and KRW 291.7 billion in 2020 … as offline customers decline, banks are reorganizing branches around regional hub systems.
□ After 41 straight trading days of net selling, pension funds are selling semiconductors, stay-at-home stocks, and battery stocks, while buying S-Oil, Lotte Chemical, KT, LG Display, Samsung Life, and HMM.
□ The second combustion test of Nuri’s first-stage propulsion engine succeeds … giving the October launch a green light.
□ Ottogi is set to raise convenience-store supply prices by as much as 31% on items such as instant porridge, cup rice, and canned tuna because of rising raw-material prices.
□ LG AI Research presents joint papers with the University of Toronto at AAAI, one of the world’s most prestigious AI conferences, on “explainable AI” and “continual learning."
□ Hyundai Motor’s first EV, the Ioniq 5, exceeds 20,000 reservations on the first day of pre-orders.
□ Ten companies are scheduled to go public next month in rapid succession … CyberOne, Prestige Biologics (an affiliate of Prestige Biopharma), NeoImmuneTech (headquartered in Maryland, but with Genexine as its largest shareholder), Biodine, Nsys, and SK Bioscience.
□ Ultra-high-end real estate such as Hannam The Hill, Apgujeong Hyundai, and Acro Seoul Forest hits new record prices one after another … as the preference for “one prime home” intensifies.
▶ See the 2021.01.19. news clipping.
□ The shift toward monthly rent in the capital region is accelerating … because the revised lease law has effectively extended jeonse contracts to four years, while low rates and higher comprehensive real-estate taxes are pushing homeowners to convert jeonse listings into monthly-rent offerings.