K-pop names are biggest bets for an RM11b Korean fund

VIP Research & Management got into K-pop and drama-related shares even before “Squid Game” sparked a global boom in South Korean entertainment, and it remains bullish on the sector after those bets paid off.

SM Entertainment Co and Seoul Broadcasting System are among the top bets for the US$2.5 billion (RM11.21 billion) Korean asset management firm that started buying shares of K-pop agencies and media firms including JYP Entertainment Corp from 2020, and it still holds them. It sold all of its stock in ContentreeJoongAng Corp in late 2021 after the production company’s Netflix series “D.P.” and “Hellbound” became the latest K-drama hits–the share jumped 44% last year, the most in six years.

Those investments have helped VIP’s flagship funds outperform the benchmark Kospi. One of its best-performing funds called “Buy Cheap Korea” has gained 91.9% over the past two years, beating the stock benchmark’s 6.3% advance. In this year’s bearish market, it lost 10.4% through August, less than the Kospi’s 17% loss and the smaller Kosdaq’s 22% slump.

VIP’s focus on Korean entertainment shares reflects the growing worldwide popularity of the nation’s dramas and musicians, as blockbuster hits help deliver stock price gains to companies involved in their production and distribution. Those shares have provided alternatives for investors in Korea’s tech-heavy stock market, which has been in a bear market amid a weak global economic outlook and concerns about aggressive rate hikes by the US Federal Reserve.

“We used to have a prejudice against the Korean entertainment sector,” Choi Joonchul, CEO at the Seoul-based asset manager, said in an interview with Bloomberg News.

“They are swayed by the make-it-or-break-it shows or groups. They are too dependent on star talents. Their management’s governance isn’t as mature as in the manufacturing industry,” he said. “All of that changed with the emergence of a cult-like global fandom.”

Companies like JYP Entertainment are trying to improve their corporate governance, while the 2021 acquisition of Justin Bieber’s manager by Hybe Co, the agency behind the big-selling band BTS, is an example of K-pop agencies trying to move away from relying too much on a single artist, Choi said.

With Covid restrictions easing, Choi said he expects a resumption of in-person concerts to boost revenue for K-pop agencies.

Avoiding Chipmakers

VIP doesn’t hold shares in domestic heavyweights such as Samsung Electronics Co and SK Hynix Inc as these stocks are rarely mis-priced in the markets, Choi said. Instead, its strategy is to find cheap value stocks among South Korea’s small- and mid-cap companies.

It’s not time to leave the Korean stock market despite the bear market because there are “a lot of cheap stocks,” he said. His top picks include Korean insurers and holdings firms such as Youngone Holdings, a major shareholder in a supplier for clothing brand Lululemon. –BLOOMBERG