First Week of March 2021

2021.03.02.

□ The U.S. savings rate, which had hovered around 7% before COVID, rose 6.8 percentage points from the previous month to 20.5%, marking the highest reading since April 2020 (33.7%), when it hit an all-time high … it is expected to serve as dry powder for “revenge consumption” once the recovery begins.
▶ GDP is the sum of government spending, private consumption, corporate investment, and exports. The most important indicator for diagnosing economic conditions is private consumption, and in theory the amount of consumption and the amount of saving move one-for-one (e.g. a KRW 1 million decline in consumption = a KRW 1 million rise in savings). The fact that the savings rate exceeded 30% in March-April last year, when the stock market and the real economy were most out of sync, supports this. In other words, the fact that the savings rate has now reached its highest level in roughly nine months is evidence that the stimulus is not properly reviving the real economy—or failing to create the expectation that it will. The weak CPI despite the fact that hundreds of billions of won are already being poured in every month—enough for inflation concerns to emerge even though the real economy has yet to show a clear recovery—also supports this.
▶ It is unclear whether this upbeat narrative of “dry powder for revenge consumption” is being pushed by the U.S. media or by the Korean media, but when articles like this appear while global equity markets are undergoing what is supposed to be a short-term correction, it does seem to suggest that equities are still biased to the upside. Another version of the strange “already priced in” story that was so common last year.

□ HSMC, a Wuhan-owned semiconductor company founded in 2017 and backed by KRW 2.6 trillion in investment, had been suspected from the outset of being a scam designed to siphon off Chinese government policy funds as it struggled with financing from the early stage of the project, and has now finally shut down.
▶ China is pushing its “semiconductor self-sufficiency drive” strategy, aiming to raise semiconductor self-sufficiency to 70% by 2025. In 2020, the self-sufficiency rate stood at 15.9%, up just 0.3 percentage points from the prior year.

□ Ministry of Trade, Industry and Energy, “February 2021 Export and Import Trends”: exports rise for a fourth consecutive month, led by semiconductors, automobiles, and petrochemicals … although there are signs of recovery from COVID-19, the variables remain U.S.-China trade tensions, semiconductor supply disruptions, and rising U.S. Treasury yields.

□ The Bank of Korea renews its KRW 11 trillion currency swap agreement with the Swiss National Bank … extending the contract term from three years to five years, with expiration on March 1, 2026.
▶ The KRW 66 trillion swap agreement with the United States expires on September 30 this year.

□ A fourth round of disaster relief is set at KRW 19.5 trillion … KRW 10 trillion of it will be financed through government-bond issuance.

□ The spread of rolling recruitment and AI-based hiring is intensifying the concentration of job seekers toward government jobs and public enterprises.

□ The number of new COVID-19 cases remains in the 300s for a second straight day … Korea’s first case of the UK variant is identified in Jeju.

□ Pension funds reduce their equity allocation to 21% after 42 consecutive days of net selling … since they still need to lower it by another 4.4 percentage points, they may sell an additional KRW 24 trillion.

□ KF-X, the first domestically developed fighter-jet project and often called the “largest weapons development project since Dangun”, with KRW 8.8 trillion to be invested over thirteen years starting in 2015, is set to complete production of its first prototype next month and make its first flight in July next year … it is expected to create 110,000 jobs and induce KRW 24 trillion in production.

□ Poongsan’s stock rises 30% in a month as copper prices surge to their highest level in ten years.

□ Korea’s aviation industry is returning large numbers of aircraft and shelving plans to introduce new ones … the damage is likely to be even more severe for low-cost carriers such as Jeju Air.
▶ On a truly long-term view, buying and holding Korean Air on a decent correction at a moment like this―when oil is running hot, the travel industry is deteriorating, and airlines are lining up at the edge of collapse―could generate substantial returns.

□ Korea’s three major shipbuilders have won KRW 5.9 trillion in orders so far this year … Hyundai Heavy Industries (KRW 3.3 trillion), Samsung Heavy Industries (KRW 1.9 trillion), and Daewoo Shipbuilding & Marine Engineering (KRW 0.7 trillion).

□ Kakao and Naver are competing for platform share in the U.S. and Japan … Kakao ranks first globally in webtoon revenue on a single-entity basis, while Naver ranks first globally on a consolidated-group basis.

□ Celltrion plans to export its COVID-19 treatment “Regkirona” in the first half at a price range of KRW 1.5 million to KRW 2.5 million … it is also operating a KRW 500 billion M&A fund together with Mirae Asset and Korea Development Bank.

□ Douzone Bizon, the leading company in Korea’s cloud industry, secures KRW 400 billion from global private-equity firm Bain Capital.

□ “COS Pro," a coding exam developed by YBM for practitioners, and “COS," an entry-level version, are being used by companies as part of their developer hiring process … examinees can choose among Python, C, C++, Java, and other languages.
▶ The Korean market does tend to turn almost everything into a test… Beneficiaries: CMS Edu?

□ Hyundai Department Store, Shinsegae Department Store, and Lotte Department Store are strengthening their living-category capabilities as an alternative to fashion … as the “stay-at-home” period lengthens because of COVID-19, the desire to expand one’s zone of private comfort is growing.
▶ See the 2021.01.20. and 2021.02.08. news clippings.


2021.03.03.

□ The ISM U.S. manufacturing PMI comes in at 60.8, beating the forecast of 58.9 and rising 2.1 points from the previous month … U.S. Commerce Department construction spending also rises 1.7%, far above the +0.8% forecast, while retail sales turn positive for the first time in four months since last September.
▶ Richmond Fed President Thomas Barkin, an FOMC member, says, “Every part of the economy—consumption, real estate, manufacturing, and corporate investment—is coming back. Given the positive economic outlook, the recent rise in Treasury yields is not surprising. Compared with the pre-pandemic period, bond yields are still low, so they do not constitute a competitive threat."
▶ Goldman Sachs says, “There is no need to worry until the U.S. 10-year reaches 2.1%."
▶ Just a few days ago, people were saying “the stock market will crash once the U.S. 10-year hits 1.5%," and suddenly the ceiling has been lifted to 2.1%. It is becoming almost certain that the stock market is still biased to the upside.

□ A Chinese domestically developed passenger jet will begin operation in the second half of the year … delivery to COMAC and China Eastern has been completed.
▶ If I ever have to travel to China, China Eastern would not be my first choice.

□ Statistics Korea, “January Industrial Activity Trends”: the industrial production index falls 0.6 from the previous month to 109.9; the manufacturing production index falls 1.7% MoM, the largest drop since May last year (MoM -7.9%); retail sales rise 1.6% MoM, extending their increase to a second month.
▶ All-industry production: declines led by electronic components, other transport equipment, arts/sports/leisure, and wholesale/retail.
▶ Retail sales: increases led by home appliances and apparel.
▶ Facility investment: machinery investment rises, while building and civil-engineering performance declines.
▶ The coincident index for current conditions is falling, while the three-month leading index is rising.

□ The Ministry of Land, Infrastructure and Transport plans to invest KRW 41.8 trillion this year in public housing, railroads, roads, airport construction, and related projects, up 17.4% from last year … compensation for land in the third-generation new towns alone will total KRW 9.1 trillion this year, with the total compensation scale for those towns expected to reach KRW 50 trillion.
▶ They kept denouncing “KRW 55 trillion for the Four Rivers project” and saying “we will not do public construction," so I had been watching with interest to see what kind of “creative economy” workaround they would come up with. In the end, they broke ground anyway.

□ Ministry of Environment, “2021 Carbon Neutrality Implementation Plan”: “A full transition to electric and hydrogen vehicles by 2050, with a review under way of ending sales of internal-combustion vehicles in the 2030-2040 period." … in the second half it will also release a “future-vehicle transition strategy for the transport sector” and a “nature- and ecology-based greenhouse-gas reduction and adaptation strategy."
▶ Core tasks of the carbon-neutrality implementation plan: energy transition, future vehicles, carbon-neutral buildings, and a zero-waste circular economy.
▶ Core tasks of the transport-sector future-vehicle strategy: 100% replacement with zero-emission vehicles and a major expansion of charging infrastructure.
▶ Core tasks of the nature- and ecology-based greenhouse-gas strategy: restoring and expanding ecological spaces and responding to climate change by maximizing ecosystem functions.

□ The secondary-battery sector shows signs of rebounding after correcting on concerns over rising U.S. Treasury yields and negatives such as the LG Chem-SK Innovation litigation … global EV sales in January rose 59% YoY. EV sales in China rose 192% YoY, and in the U.S. 64% YoY.
▶ Related stocks: LG Chem, Samsung SDI, SK Innovation, POSCO Chemical, SKC, Iljin Materials, and Ecopro BM.

□ Korea Real Estate Board, “Monthly National Housing Price Trends Survey”: “House prices in the Seoul metropolitan area rose 1.17% MoM in February, the largest increase since June 2008 (MoM +1.8%)."
▶ See the 2021.01.19. news clipping.

□ Following Blackstone, the world’s largest private-equity firm, and IMC Securities of the Netherlands, Natixis, France’s second-largest investment bank, also decides to expand the business scope of its Korea office.
□ The Hyundai Motor-SK “hydrogen alliance” signs an MOU to expand supply of hydrogen EVs and build additional charging infrastructure … SK will install hydrogen chargers and rapid EV chargers at SK gas stations nationwide, while Hyundai Motor will discuss supply of hydrogen EVs.
▶ SK: KRW 18.5 trillion investment in fuel-cell power plants and liquefied-hydrogen production facilities.
▶ Hyundai Motor: KRW 11.1 trillion investment in hydrogen vehicles and fuel-cell development.
▶ POSCO: KRW 10 trillion investment in hydrogen-reduction steelmaking technology.
▶ Hanwha: KRW 1.3 trillion investment in green-hydrogen production facilities.
▶ Hyosung: KRW 1.2 trillion investment in liquefied-hydrogen-plant facilities.
▶ A “Hydrogen Committee” involving SK, Hyundai Motor, and other hydrogen-related companies is scheduled to be launched in the first half of the year.

□ Samsung C&T wins the KRW 1.85 trillion contract to build an LNG export terminal in Qatar as sole contractor.
□ As the Ioniq 5 records 23,760 domestic pre-orders on the first day and then sells out 3,000 units in European pre-orders as well, EV parts suppliers see their share prices rise one after another.
▶ Related stocks: Hyundai Mobis, Hyundai Wia, SK Innovation, LG Energy Solution, Hanon Systems, SL, Woori Industrial, Dong-A Hwa Sung, Jahwa Electronics, MCNEX, Haesung DS, and Daeduck Electronics.

□ The market-cap share of domestic-demand stocks on the KOSPI falls to 42.6%, the lowest in eight years … more attention is needed on asset stocks, cyclical stocks, and domestic-demand stocks.
▶ Hana Financial Investment researcher Lee Jae-sun recommends “transportation, hotels, cosmetics, and healthcare” among domestic-demand sectors, as they face relatively low cost pressure and are seeing rapid improvement in gross margins.

□ LG Innotek develops the world’s first in-vehicle Wi-Fi applying next-generation Wi-Fi technology … demand for in-vehicle Wi-Fi communication modules is projected to rise 70%, from 51.2 million units in 2020 to 87.3 million in 2025.

□ LG CNS releases for free “DevOn NCD," a development platform that allows application building without knowing how to code … because it even handles debugging on its own, users can code fairly easily with just one month of training.
▶ This is why the industry is made up of “2% exceptional talent and 98% routine coders." It will gradually shift to “0.2% developers and 99.8% routine coders."

□ As vaccination begins, consumer-goods companies such as SGC Solution (household glassware) and Bodyfriend (massage chairs) slightly expand the share of offline business.

□ Market Kurly begins operating a fresh-food logistics center in Gimpo, the largest in Korea, at roughly 82,500 $$m^2$$.


2021.03.04.

□ U.S. President Biden says, “We will secure enough vaccine doses for all adults by the end of May. I hope the United States will return to normal around this time next year." … the Atlanta Fed raises its 1Q21 U.S. growth forecast from +8.8% to +10%.

□ Guo Shuqing, head of China’s banking and insurance regulator, warns ahead of the Two Sessions—the National People’s Congress and the Chinese People’s Political Consultative Conference—that “there is a bubble in global financial markets and in China’s real estate market." … as the CSI 300 Index—roughly Korea’s equivalent of the KRX 300—fell 8% in a single day and tightening fears mounted, Finance Minister Liu Kun stepped in to calm the market, saying “we will maintain proactive fiscal policy and prudent monetary policy."

□ The Ministry of Land, Infrastructure and Transport decides to inject up to KRW 200 billion into low-cost carriers such as Jeju Air, Jin Air, and T’way through the third quarter … the International Air Transport Association (IATA) says, “It will take two to four years for air travel demand to recover to pre-COVID-19 levels."
▶ Preparations are under way to implement within the year a “travel bubble” that would lift entry bans and ease quarantine measures for people confirmed negative for COVID-19. A “travel pass” is also planned, allowing users to verify test results and vaccination status via app. See the 2021.03.02. news clipping.

□ Deputy Prime Minister Hong Nam-ki says, “Once the pandemic is stabilized, we will release KRW 50 billion worth of coupons and vouchers to support revenge consumption."
▶ Types of coupons and vouchers: agricultural and fisheries products, dining out, lodging, sports, integrated culture-use vouchers, sports-lecture vouchers, and employee vacation support.

□ Ministry of Trade, Industry and Energy, under the “National Innovation Cluster” program, begins second-stage projects across 14 cities and provinces … KRW 180 billion will be invested through next year to foster regional new-growth hubs.

□ Bank of Korea, “4Q20 Sectoral Lending by Deposit-Taking Institutions”: “Outstanding loans to the self-employed rose KRW 10.4 trillion from the previous quarter in 4Q20, reaching a record KRW 398.3 trillion." … “Manufacturing loans fell KRW 2.2 trillion quarter on quarter as conditions improved with stronger exports and firms temporarily repaid loans for year-end balance-sheet management."

□ FSC Chairman Eun Sung-soo says, “When calculating loan limits for young people and homebuyers without homes, we will further ease regulation so that the LTV and DTI ratios rise and future income, not just current income, is taken into account." … a supplementary measure to the strengthened individual DSR rules (i.e. regulation based on the ratio of principal and interest payments to annual income) that are about to take effect.

□ As rates rise and the stock market loses momentum, demand deposits—roughly equivalent to freely withdrawable deposits—jump by KRW 30 trillion in a month, while time savings deposits fall by KRW 4 trillion.

□ Even when firms hire computer-science graduates, it still takes six months to a year just to retrain new hires … because most incoming students lack fundamentals owing to the poor state of public education, even universities struggle to offer advanced AI coursework.

□ In 2020, 102 tourism accommodation businesses filed notices of suspension or closure because of COVID-19 (YoY +61.9%) … more than 110 hotels are estimated to be on the market, mostly 3- and 4-star properties. All five listed hotel operators posted losses.
▶ Hotel Shilla, Walkerhill Hotel (SK Networks division), Josun Hotels & Resorts (an E-Mart affiliate), Parnas Hotel (a GS Retail subsidiary), and Paradise Hotel (the Paradise division).

□ Retail stocks surge across the board on expectations of earnings recovery as vaccination expands … Hyundai Department Store’s Yeouido branch posts more than KRW 37 billion in sales just six days after opening.
▶ I happened to stop by Yeouido briefly around lunchtime on Saturday because of an appointment, and it felt as though cherry-blossom season had already arrived. Starbucks at Yeouido Station, the Starbucks on the IFC side, Mahogany, and Paul Bassett were all packed. I got takeaway and had it in the park.

□ A salt lake in Argentina acquired by POSCO in 2018 for KRW 310 billion is found to hold more than six times the lithium reserves estimated at the time of acquisition … enough to produce batteries for 370 million EVs. Combined with the recent surge in Chinese lithium carbonate prices, it is being revalued at KRW 35 trillion.

□ Hyundai Glovis sells a 30% stake in its Polish subsidiary to Changjiu, China’s largest private logistics company … planning to launch ECT, a specialized China-Europe rail-transport brand.

□ Hyundai Motor decides to produce 17,000 units of the Nexo hydrogen EV this year … roughly three times last year’s 6,400 units.

□ Hyundai Heavy Industries signs an “MOU related to hydrogen and ammonia businesses” with Saudi Aramco, the world’s largest oil company … Hyundai Oilbank will import LPG from Aramco and produce blue hydrogen, while Aramco will receive liquefied carbon dioxide generated during the blue-hydrogen process and use it in local oil fields for enhanced oil recovery.

□ Bodyfriend ranks first in the global massage-chair market for a fourth consecutive year, according to research by U.S. firm Frost & Sullivan.

□ Hyundai Engineering & Construction plans to complete by year-end a KRW 230 billion straight-line future-vehicle test track in the Seosan special district in South Chungcheong Province (B District of the Cheonsu Bay reclaimed land) together with Hyundai Mobis, and by 2025 to build a KRW 630 billion green-bio smart city including smart farms.

□ Myeongsin (listed on KOSPI), which acquired GM Korea’s Gunsan plant, together with Edison Motors, Daechang Motors, MPS Korea, and KOSTEC, plans to invest KRW 517.1 billion by 2024 in Gunsan, which was selected for a “shared-growth regional jobs” program, to produce 240,000 EVs.


2021.03.05.

□ The Federal Reserve says, “Economic activity expanded at a modest pace in most districts from January through mid-February this year … businesses have also become more optimistic thanks to widespread vaccine distribution." … Patrick Harker, President of the Philadelphia Fed, and Charles Evans, President of the Chicago Fed, say “if Treasury yields surge, yield-curve control could be used."

□ Container shipping rates rise fivefold in a year, driving up prices for consumer goods such as coffee, sugar, soybeans, and cotton one after another … because global demand for shipping is surging as the world economy recovers rapidly even though COVID-19 has not fully ended.

□ Commodity, agricultural, and resource themes strengthen on expectations of recovery and inflation … raising hopes for a “commodity supercycle," the fourth such cycle in the last hundred years.

□ Statistics Korea, “February 2021 Consumer Price Trends”: 107.0 (YoY +1.1%). Over the three days around the March 1 holiday, sales at Hyundai, Lotte, and Shinsegae department stores rose more than 20% from the same period in 2019 … foot traffic in Gangnam and Hongdae shopping districts also rose more than 20% YoY, while reservations at family restaurants and fine-dining restaurants increased.
▶ One of the real-economy indicators is food and beverage retail sales. Late February and early March are originally the strongest consumption period of the year. What matters is whether this consumption trend continues.

□ KB Financial Chairman Yoon Jong-kyu says, “If you go into a big-tech platform, in the long run you will become subordinate to it." … making KB the only one of the five major banks not allied with Naver or Kakao.
▶ The substance of the comment is not wrong, but this is finance, not the IT industry, and I think it is excessive ambition for a Korean bank―operating in a system close to state-directed finance―to imagine it can build an independent platform that defeats both Naver and Kakao in Korea. It is like saying that, rather than becoming a tenant because you dislike having to watch the landlord’s mood, you will simply build an entirely new building instead. Even Samsung eventually gave up on developing its own OS after belatedly trying to recreate Android, which it had earlier rejected, and even Naver ended up restoring YouTube links after blocking them on its blog and café platforms. So by what means exactly does KB intend to build a platform in Korea that surpasses Naver and Kakao?

□ Ministry of Employment and Labor, in its review and resolution on the “2020 Youth Employment Obligation System at Public Institutions," reports 22,798 newly hired young employees in 2020 (YoY -20.4%) … youth employment as a share of total headcount falls from 7.4% to 5.9%.
▶ This is the result of converting large numbers of existing irregular workers into regular employees all at once as in the Incheon Airport Corporation controversy and similar cases, thereby reducing the scale of new hiring for young people. Robbing Peter to pay Paul.

□ The virtual-reality SNS Zepeto, which has surpassed 200 million users amid strong interest from Millennial and Gen Z users, sells 5 million sneaker items in collaboration with Nike … it has also received KRW 17 billion in investment from Big Hit, JYP, YG, and others.
▶ From what I can tell, early-adopter MZ users seem to have used it at first more or less the way Koreans once used Cyworld―an early Korean social-networking platform that was popular in the 2000s and early 2010s―but now it feels more like a playground for school-age users born after 2000. Given that users are role-playing school settings with bullying and ostracism themes, and even treating the flipping of school lunch trays as part of the play, this looks very likely to turn into a social controversy before long, much like the Iruda incident.

□ Homeplus posts KRW 1 trillion in online sales alone last year … its goal is KRW 2.4 trillion in online sales within three years.
▶ Cold-chain-related stocks? Logistics REITs?

□ JobKorea is acquired by Hong Kong-based private-equity firm Affinity for KRW 800 billion.