In this briefing:
- Hyosung Holdings: 10%p Drop in Discount to NAV Should Be Reverted Soon
- Celltrion/Celltrion H Pair: Last 2 Days Must Be Price Divergence, Not Mean Reversion
- Are US Stocks A Buy Yet?
- Korea Stock Market Monthly Recap #31 (December 2018)
- Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
1. Hyosung Holdings: 10%p Drop in Discount to NAV Should Be Reverted Soon
- Hyosung Corporation (004800 KS) had fallen 16% just in two days. Holdco is now at a 50% discount to NAV. This is a 10%p drop from 10 days ago (Dec 19). Holdco price must have been overly corrected. The ongoing police investigation on Cho Hyun-joon’s alleged crime won’t lead to a delisting. 10%p drop in discount to NAV must be a price divergence, not a sensible price correction.
- Trade volume remained steady. Local hedge funds led the selling on Dec 27. Even they changed their position the following day. No short selling spike has been seen either. Hyosung is one of the highest yielding div holdco stocks. Hyosung Capital liquidation and Anyang Plant revaluation would be another short-term plus.
- I’d exploit this price divergence. It would soon revert to the Dec 19 discount level. It should at least stay at the peer average.
2. Celltrion/Celltrion H Pair: Last 2 Days Must Be Price Divergence, Not Mean Reversion
- The accounting fraud issue had hammered the Celltrion duo nearly equally up until Dec 26. But last two days were different. Healthcare got hurt much more deeply. Celltrion fell only 2.41%, but Healthcare fell 11.52%.
- The accounting issue is supposed to be equal to both. KOSPI move and merger are still alive to push up Healthcare. Local institutions and foreigners have bashed both pretty much equally in the last two days. This is another sign that it was more of a price divergence than a mean reversion.
- The duo is now at 20D MA and also the yearly mean. I expect it to go substantially below the yearly mean on KOSPI move and merger expectations. A powerful downwardly mean adjusting force still seems to be in action. I’d long Healthcare and short Celltrion to exploit the latest price divergence.
3. Are US Stocks A Buy Yet?
- 5%-like rallies on Wall Street are signs of a bear market not a bull market
- Bull markets require strong liquidity and low risk appetite, neither yet apply
- Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
- Recent large fall in risk appetite consistent with upcoming economic recession
4. Korea Stock Market Monthly Recap #31 (December 2018)
Korean stock market declined again in December. KOSPI was down 2.7% in December and completed 2018 with a decline of 18% this year. Investors remained cautious preferring to increase their capital allocation to defensive sectors such as utilities. However, December was a bit unusual in that KOSPI declined much less than the US market (S&P 500 was down 9% in December). In the past few months, there has been a noticeable outperformance of numerous emerging markets stocks relative to the US stock market.
Fool me once, fool me twice, fool me three times? It has been 10 years since the last Great Repression. Unlike in 2008, when the US Fed Fund rate plummeted from 4.1% in the beginning of the year to 0.09% at the end of the year, the US Fed Fund rate kept climbing throughout the year. The share price declines in global equity markets around the world this year are probably reflecting the concerns about a potential recession in the next two years.
Our model portfolio was down 2.0% in December (cash is 30% of model portfolio), outperforming KOSPI which was down 2.8% in December. Starting January 2019, we are increasing the cash portion to 35% of the model portfolio, to become more defensive in capital allocation.
The top 10 events impacting the Korean stock market, economy, & politics in December were as follows:
- Global markets volatility
- Growing concerns about the declining memory prices on the semiconductor sector
- Investors trying to find next HanjinKal
- Hyundai Motor Group and Korean Government’s Big Push into Hydrogen Fuel Cell Vehicles
- Jim Rogers & Ananti
- The EU agrees to cut carbon emissions from cars by 37.5% by 2030
- Amorepacific’s strong rebound
- Korean prefs vs. common
- Samsung Biologics trades again
- Naver’s surprising stock option plan
The top three reports we wrote in December related to the Korean market were as follows (in terms of views & appreciates):
- Review of Our IPO Research in 2018 & Change in Our IPO Research Process for 2019
- Top Seven Korean Stocks for Corporate Activists in 2019
- Korean Stock Market Sectors 2018 Review & 2019 Outlook
5. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
The year 2018 has proven tumultuous for global markets. Rapidly changing geopolitical priorities of the US, an erstwhile hegemon, have played a role no less significant than the withdrawal of liquidity by leading central banks or US monetary policy tightening. The US has openly declared that it is in a state of “cold war” with China. Despite the recent truce, signs are abundant that the confrontation between the two global superpowers will continue into 2019 and beyond. In 2019, we expect more countries to find themselves in a position where they must choose who they want to side with, the US or China. There are other tectonic shifts, too, which are causing re-alignment of global geopolitical alliances.
