Daily Brief South Korea: HYBE , Amorepacific Corp, HDC Hyundai Development Co-Engineering & Construction and more

In today’s briefing:

KRX Imposes a 20% Cap on Weight Ceiling in Sector ETFs with Few Constituents

KRX limits individual stock weight to 20% in ETFs with few constituents. KRX confirms working on it, with an official announcement expected soon.
Excludes index ETFs like KOSPI 200. KRX hasn’t finalized criteria for constituent number but expected to involve fewer than 30 stocks.
This could open new passive trading opportunities. Sector ETF cap at 30%, large AUM ones offer noteworthy trading potential.

In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 2Q 2024.
Although the discount on the preferred shares versus the common shares has been gradually narrowing in the past decade, this discount increased from end of 2021 to 1 April 2024.
On a longer timeframe (3-4 years), we believe this discount could narrow further to the 20-25% range, which provides additional opportunities for the Korean preferred shares to further make gains.

In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 2Q 2024.
Of the 38 pair trades, 26 of them involved holdcos outperforming opcos in the past six months, suggesting increased capital allocation to Korean holdcos relative to their opcos.
These pairs could generate trading opportunities in terms of their pricing gaps closing reversal. [CJ Corp vs CJ Cheiljedang & Hanjin KAL Corp vs Korean Air Lines].

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