Brief Korea: The K-Unicorn Project and more

In this briefing:

1. The K-Unicorn Project
2. CES 2020. Compare & Contrast What Intel, AMD & NVIDIA Had To Say
3. Top 7 Investment Ideas from Top 200 Youtube Channels in Korea (Mukbang Included)
4. South Korean Banks: You Back the Big Prices, Not the Favourites
5. Celltrion Merger: Is It for Real This Time? Why Next Year?

1. The K-Unicorn Project

2. CES 2020. Compare & Contrast What Intel, AMD & NVIDIA Had To Say

CES 2020 played out very differently for Intel,AMD and Nvidia. With little in the way of new product launches to announce, Intel emphasised its prowess in the fields of Artificial Intelligence and Autonomous Driving. They did have one significant piece of news however, namely that first silicon on their long-promised discrete graphics product is ready, bad news indeed for NVIDIA. 

AMD’s pitch on the other hand was all about new products and roadmaps. The launch of their second generation Zen 7nm mobile processors opens up yet another battleground with an increasingly beleaguered Intel while their latest GPU offering had NVIDIA scrambling to cut the price of their competing part within days. 

Remarkably, NVIDIA chose to largely ignore the event, relying instead on partner booths to showcase their products. Here’s a look in more detail at what each company had to say and perhaps more importantly, what they absolutely did not want to talk about at all. 

3. Top 7 Investment Ideas from Top 200 Youtube Channels in Korea (Mukbang Included)

4. South Korean Banks: You Back the Big Prices, Not the Favourites

South Korean banks are called many things. Dull, boring, mediocre…the terms of endearment are endless. Perhaps even solid on a good day. “Value trap” on a bad day.

But a core of GEM investors are sticking with South Korean banks. Less than before, it is true, as testified by Steven Holden’s recent analysis and even less so the further you go back. Maybe the sunnier climbs of Indonesia, HDFC, and Russia (despite the recent chill news) are just too compelling in comparison. Steve’s work also shows a discrete move into financials in the Philippines and in Colombia too but this is marginal versus the “big picture” of overcrowded trades based on extrapolation in Bank Rakyat Indonesia Perser (BBRI IJ), Bank Mandiri Persero (BMRI IJ) , Bank Negara Indonesia Persero (BBNI IJ) , Bank Central Asia (BBCA IJ) HDFC Bank (HDFCB IN) and Sberbank Of Russia Pjsc (SBER LI) .

Recall that on a trip to the track, the higher the odds means the less chance the market thinks that a wager has, but the bigger reward if it does come off. Howard Marks in his latest memo, Charlie Munger, and Ray Dalio frequently make references to the similarities between gaming and investing.

The analogy. South Korean banks would thus be outsiders (long odds) carrying a heavy weight in a steeplechase handicap. They have though good form in the past (hence the weight) over course and trip but may have been held up by a training setback or disappointing form at the stable. They are far from favourites in the market though some shrewd punters just think the odds are too high. 

South Korean bank shares are undervalued by all valuation metrics – cheapness means long odds. The market has determined a low value for South Korean banks as opposed to other jurisdictions. This suggests both higher risk, low expectations of growth, and a low duration payback in contrast to “short odds” higher priced, longer payback, options.

Uncertainties include the spat with Japan which must be part of the discount besides the perennial governance issue, memory chip jitters, fading overseas shipments, and the interrelated Chinese slowdown. The fate of Asia’s fourth-largest economy is closely tied to global electronics demand and China, with exports representing 45 per cent of the country’s GDP and China accounting for a quarter of the country’s outbound shipments. A reduction in the aforementioned clouds could unlock relative out performance for Korean banks.

To end on the analogy. Underfoot conditions will test the stamina of the outsider under so much weight but he will last home unlike many of the favourites that may not even get the trip (distance).

5. Celltrion Merger: Is It for Real This Time? Why Next Year?

Almost every year, we hear this same old story about the Celltrion merger when we approach the OGM season in March. It has always been Chairman Seo himself who brought the issue to the public. This time, it is no different. Seo appeared at this year’s J.P. Morgan Healthcare Conference in San Francisco and once again said in front of the local reporters that he would give a shot at the merger. But this time, he specifically mentioned a target timeline. He said he would give it a chance sometime next year.