Second Week of March 2021

2021.03.08.

□ The U.S. Senate passes a USD 1.9 trillion (approximately KRW 2,100 trillion) stimulus package … the proposal to double the federal minimum wage (from USD 7.5 to USD 15) is omitted from the package.

□ The U.S. Department of Labor reports that nonfarm payrolls increased by 379,000 last month … 4Q20 net profit for S&P 500 companies also rose 3.9% YoY.
▶ Restaurant and bar employment increased by 286,000 … Goldman Sachs projects U.S. growth of +5.5% in 1Q.

□ China Customs reports exports of USD 468.8 billion in January-February this year (YoY +60.6%) … the highest growth since February 1995 (YoY +88%), with export volumes surging across all products except petroleum products.
▶ Peking University projects China’s 1Q growth at +18% … with export momentum expected to weaken in the second half, the economic outlook is for “high in the first half, low in the second half."

□ China’s State Council unveils the 14th Five-Year Plan focused on science and technology … annual R&D spending growth of at least 7%, a doubling of high-value patents within five years, and an increase in the digital economy’s share of GDP from 7.8% to 10%.
▶ In its longer-term economic plan through 2035, China is focusing on research in “seven advanced strategic technologies”: AI, quantum information, integrated circuits, brain science, genetics and biotechnology, clinical medicine and healthcare, and space/deep-sea/polar exploration.
▶ Given the ethical boundaries the Chinese state appears willing to cross, it would not be surprising if it moved aggressively in biotech and healthcare research.

□ The UN Food and Agriculture Organization says, “The food price index in February reached its highest level since July 2014. The cereals price index reached its highest level since July 2013. The dairy price index reached its highest level since December 2017."

□ The Ministry of Science and ICT will provide high-performance computing infrastructure support to 1,000 companies and institutions developing AI.

□ The Ministry of SMEs and Startups and Korea Venture Investment, under the “2021 First Scheduled Fund-of-Funds Contribution Program”, select 38 funds totaling KRW 1.4 trillion … including KRW 375 billion across 10 contactless funds, KRW 125 billion in one bio fund, KRW 125 billion across five Green New Deal funds, and a KRW 100 billion fund for the DNA sector (data, network, AI) and the three major new industries (system semiconductors, future vehicles, bio-health).

□ The Fair Trade Commission pre-announces legislation to revise the Electronic Commerce Act so that platform operators such as Naver and Coupang, not just the seller, will bear joint liability when consumer harm occurs.

□ In Seoul’s 150 major commercial districts, sales are down 36% YoY, while rents are down just 0.6% YoY … the effect of the voluntary “good landlord movement” has been minimal.
▶ No one is going to discount rent just to receive KRW 1 million in gift certificates.

□ The health-supplement market is expected to double in five years, from KRW 2 trillion in 2016 to KRW 4 trillion in 2021 … according to the Ministry of Food and Drug Safety’s survey on “whether people take health supplements," the share rose from 50.2% in 2012 to 68.9% in 2020.

□ Thanks to the arrival of spring and a growing cohort of beginner hikers, outdoor sales at the three major department stores are surging … hiking demand is rising because it carries a relatively low COVID-19 infection risk.

□ Naver begins issuing foreign-currency bonds for the first time since its founding … issuance amount: USD 500 million. Lead managers: Morgan Stanley and Mirae Asset Daewoo.

□ Hyundai Construction Equipment is securing a series of large construction-equipment orders from the Middle East, Southeast Asia, and Latin America as iron ore and copper prices rise.


2021.03.09.

□ Yemeni rebels target Ras Tanura, Saudi Arabia’s port and the world’s largest offshore crude-oil refining and shipping hub, with drones and ballistic missiles … there is no material damage to life or property, but intraday oil prices hit USD 71.38 as Middle East risk resurfaces.
▶ Investment-bank forecasts: USD 65-80 per barrel.

□ The semiconductor shortage is hitting not only the auto industry but also the smartphone industry … orders are flooding to Qualcomm, the No. 1 application-processor AP supplier, as demand explodes on hopes of economic recovery.
▶ Even Apple, which produces its own APs, uses Qualcomm components for 100% of its 5G modem chips. In smartphone AP market share, Qualcomm ranks first (30.7%) and MediaTek second (28.1%), and both are fabless. Actual production is entirely carried out by foundries such as Samsung Electronics and TSMC. As orders flood into foundry services, unit prices are rising 15-20%.
▶ There is also concern that shortages in AP supply could reduce smartphone output and put the brakes on the “DRAM supercycle."

□ Carbon-credit prices hit an all-time high of USD 37.97 per ton as the U.S. moves to rejoin the Paris climate agreement and ESG management comes to the fore … an ETF is also listed in the U.S. market (ticker: KRBN).

□ The Democratic Party announces plans, in a high-level policy consultation with the Federation of Korean Trade Unions, to legislate a “sickness allowance system” … annual budget requirements are estimated at KRW 805.5 billion to KRW 1.7718 trillion, making a sharp rise in health-insurance premiums unavoidable.

□ The food-price inflation rate reaches 9.7% in February, the highest since August 2011 (11.2%).

□ In 2020, the textile trade balance posts a USD 4.99 billion deficit, while the apparel manufacturing production index falls to a record low of 68.7 (2015 = 100) … due to the drop in foreign tourists in Myeong-dong and Dongdaemun and declining clothing consumption online and offline amid COVID-19.

□ Net profit at domestic banks falls 11.5% YoY last year … because they booked KRW 7 trillion in credit costs (YoY +88.7%) in preparation for possible loan deterioration due to COVID-19.
▶ Even though the net interest margin fell 0.15 percentage points, the overall balance sheet expanded (YoY +9.7%), bringing interest income to KRW 41.2 trillion (YoY +1.2%). See the 2021.02.08. news clipping. Non-interest income also rose to KRW 7.3 trillion (YoY +11.7%).
▶ In reality, banks earned more money, but accounting net profit declined because provisions were raised sharply. Pressure to cut dividends probably also played a role. A sharp rebound in dividends or share buybacks may be worth watching for later.

□ The KOSPI breaks below 3,000, but bank stocks rise sharply across the board … KOSPI YTD +1.8%, KRX Banks Index YTD +13.5%.
▶ See the 2021.01.18. weekly update (Telegram message).

□ KB Bank is applying IoT to movable-asset financing backed by collateral such as production equipment, inventories, accounts receivable, and raw materials … delinquency rates on such collateralized loans fell from 4.2% in December 2018 to 0.2% in January 2021.
▶ With low rates persisting and the government pressuring banks not to collect interest aggressively on household and corporate loans, this appears to be a kind of alternative-investment business line.

□ The bidding war for eBay Korea, which owns Gmarket and Auction, unexpectedly heats up … forming a three-way race among Kakao which needs to reinforce e-commerce, its biggest weakness versus Naver, SSG.com whose core revenue items are limited, and MBK Partners which is seeking to raise the value of Homeplus, which it already owns.
▶ I had assumed it would be acquired by a private-equity fund specializing in logistics—which is why I did not even include it in the news clipping when the story first broke—but once Coupang decided to list on the NYSE, the acquisition battle suddenly intensified.

□ Intellian Technologies, the global leader in marine satellite-communication antennas, signs a KRW 82.3 billion antenna supply contract with UK satellite operator OneWeb … “This effectively means the company will be the first in the world to mass-produce low-cost flat-panel antennas for low-earth-orbit use."
▶ Most Korea-listed satellite-related companies are Hanwha affiliates. Intellian has also signed an MOU with Hanwha Systems in the military satellite-communications field.

□ LG Innotek signs an MOU with Microsoft to cooperate on development and supply of a “time-of-flight” sensing module … it is expected to enter the “Azure ecosystem," which shares Microsoft’s cloud platform.

□ POSCO and SK Global Chemical (an SK Innovation subsidiary) sign an MOU to develop lightweight new materials for EVs.

□ POSCO International says, “We will expand separator-plate output for hydrogen fuel cells from the current 1,400 tons to around 10,000 tons by 2027."

□ Theme stocks tied to former Prosecutor General Yoon Seok-youl continue to proliferate … first the “Seoul National University Law School alumni” theme, and now even the “Papyeong Yoon clan” theme.
▶ The trading behind these themes looks excessively speculative.

□ Pocheon City in Gyeonggi plans to invest KRW 97.6 billion in Gomo-ri, Soheul-eup, to build a complex industrial district including “advanced small-office warehouses for culture, new industries, and startups” … it says it “expects economic effects of KRW 795.4 billion in induced production and KRW 286.5 billion in induced value added."
▶ Situated in Gomo-ri—the smallest administrative division in Korea—the project does not seem to justify a KRW 100 billion outlay. No startup is likely to move there, and since “e-commerce” is mentioned, the site will likely end up as little more than a logistics warehouse. Mayor Park Yun-kuk—a local politician who has been cycling through county- and city-level offices in Pocheon for two decades—appears to be using the South Korea–North Korea economic-cooperation theme to draw KRW 370 billion from the city budget. This looks like an attempt to raise his political stature ahead of the next general election.

□ Gwangju Metropolitan City begins a full push to attract Seoul National University’s Basic Electric Power Research Institute “High Magnetic Field Research Center."


2021.03.10.

□ U.S. consumption and employment indicators show an unexpectedly strong recovery … higher U.S. Treasury yields accelerate dollar strength.

□ Even after the Bank of Korea’s emergency purchase of KRW 2 trillion in 3-year, 5-year, and 10-year government bonds, yields continue to rise … the 10-year yield breaks above 2%.

□ The BBIG leading sectors—batteries, biotech, internet, and gaming—lose momentum … entering a volatility phase as rates rise.

□ The U.S. Centers for Disease Control and Prevention says, “Private gatherings are possible without masks from two weeks after vaccination." … New York City also allows in-person high-school classes for the first time in four months.
▶ I think this is less because the actual danger has disappeared than because policymakers are trying to lower public vigilance toward the risk and stimulate the economy. From the financial side, there is little policy ammunition left.

□ The OECD raises its forecast for Korean economic growth this year from 2.8% to 3.3% … and raises its global growth forecast from 4.2% to 5.6%.

□ The Ministry of Economy and Finance pushes to ease or abolish the current rule requiring a public stake of at least 30% in special-purpose corporations set up to develop 15 state-owned sites, including the former Seoul National University agriculture campus and former military land.

□ The managed fiscal balance, used as a practical indicator of the government’s fiscal position, records a KRW 1.8 trillion deficit in January … the first back-to-back annual deficits since the series was first published in 2011.

□ The Ministry of SMEs and Startups, in its “2015-2020 Venture Investment Analysis," reports that the number of startups valued at KRW 100 billion or more rises 6.3-fold from 51 in 2015 to 320 in 2020 … the corporate value of the 4,500 or so firms that received ministry investment stands at KRW 172.8547 trillion, equivalent to 44.8% of KOSDAQ market cap as of year-end.
▶ By sector, the ranking is ICT (1,381 firms), distribution/services (781), and biotech/medical (645).

□ The KOSPI falls intraday to 2929.26, while the KOSDAQ breaks below 900 … affected by higher rates and a rising exchange rate.
▶ See the 2021.03.12. weekly trends.

□ The Korea Securities Depository launches the “electronic shareholder-meeting information notification service” … using KakaoPay’s electronic-document service to send AGM information via KakaoTalk … not only can users receive shareholder-meeting information, but electronic voting is also available.

□ “Online financial gift certificates”—which allow people to gift stocks like a mobile gift coupon—become a hot topic … Korea Investment & Securities, which launched Korea’s first online financial gift certificate in March last year, sold KRW 176.1 billion worth over the course of one year.

□ Stocks with market capitalization above KRW 10 trillion and average daily turnover above 15% for two consecutive quarters will henceforth be excluded from market-making programs … separately, the finance ministry also decides to exclude market-making trades in stocks with market cap above KRW 1 trillion and turnover in the top 50% from securities-transaction-tax exemptions.
▶ Market-making trades: trades in which the government directs securities firms to post quotes in order to supply liquidity (i.e. make markets). Securities firms have been receiving tax benefits for this.

□ Coinbase, the largest cryptocurrency exchange in the U.S., trades at USD 350 per share on Nasdaq Private Market (NPM) … implying a corporate value of USD 90 billion.

□ Panasonic is staking everything on transforming itself from a manufacturer into a service company … it acquires U.S. firm Blue Yonder, which offers AI-based supply-chain optimization, for KRW 7.3 trillion.

□ SK Chairman Chey Tae-won’s keyword is “financial story” … dispose of businesses with unclear future value and of stakes beyond what is necessary.
▶ Sell businesses with ambiguous effects (e.g. the baseball team, shale gas).
▶ Sell down to only the level needed to retain control (e.g. SK Chemicals, SK Biopharm).
▶ Sell business units that run counter to ESG (e.g. SK Networks’ gas-station business, SK Global Chemical).

□ Naver founder and global investment officer Lee Hae-jin says, “I do not care if we make no money in Korea. Let us not create people who put on protest headbands and oppose us. It would be better not to launch new businesses in Korea." … a Naver official says, “We understand that this GIO was shocked when taxi drivers put on headbands and protested against Tada, and the political world sided with the taxi drivers."
▶ Naver’s business center of gravity is shifting from Korea to Japan … Z Holdings, its joint venture with SoftBank, plans to invest KRW 5 trillion in Japan over five years.
▶ Promising Korean startups such as Top Blind (U.S.), Membership Company (China), SenseTone (UK), and Balance Hero (India) are also moving their headquarters abroad.

□ Korea’s three major shipbuilders win 51.85% of all vessel orders placed worldwide this year.

□ SK pushes to raise KRW 1 trillion by selling 49% of its stake in the U.S. hydrogen company Plug Power.
▶ See the 2021.01.22. news clipping.

□ Korea’s five major general trading companies are taking on new-business vanguard roles instead of simply engaging in intermediary trade … POSCO International (LNG, parts and materials), LG International (Indonesian nickel mine), Samsung C&T (renewable energy), SK Networks (vehicle and appliance rentals), Hyundai Corporation (hydrogen and EV parts).
▶ With domestic raw-material prices such as LNG and coal rising, earnings at POSCO International and LG International are expected to improve.

□ LG Electronics’ North American vehicle-components business is drawing higher expectations as GM, one of its key clients, gets its EV business onto track … its EV powertrain joint venture with Canada’s Magna will also launch in July.

□ Samsung SDI invested KRW 1.5719 trillion in facilities in 2020, and KRW 808.3 billion in R&D, the largest such spending in its history.

□ Hanssem begins offering a “3D Real Viewer” service on its online shopping mall, Hanssem Mall, allowing users to upload photos of a space and check furniture placement virtually.
▶ If they add something like a YouTube-style algorithm recommending “MD picks for rooms of this size or layout," Koreans will probably start ordering furniture the way they build cities in SimCity.

□ Following SK Bioscience, which raised KRW 1.4919 trillion in its IPO, a series of major KRW 1 trillion-plus IPO candidates are set to list, including LG Energy Solution, Krafton, KakaoBank, KakaoPay, and SK IE Technology … total offering size is estimated at KRW 15-20 trillion.
▶ Securities-firm earnings? For NH, SK Bioscience alone generated KRW 4.4 billion in revenue.

□ As the Seoul metropolitan area and major provincial markets are tied up by regulations, Gangwon Province is enjoying spillover benefits … Gangneung Xi Fine Venue recorded a subscription ratio of 13.15:1 in January.