Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

Although NCsoft's stock price  has performed well in the past year, we believe the stock is well poised to outperform the market again this year. NCsoft, similar to many other leading global game companies, have benefited from COVID-19 as millions of people in Korea and around the world have been forced to various forms of lockdown and spend more time at home.Currently, millions of people in countries such as are starting to take new vaccines for COVID-19. However, there are new mutated COVID-19 strains that have found to be 50%+ more contagious than the existing COVID-19 virus. These events suggest that the first half of 2021 will continue to be quite restrictive in major governments around the world including South Korea and U.K. continuing to impose various kinds of lockdowns and social distancing measures which mean that people in these countries will continue to spend a lot of time at home. This would continue to benefit leading global game companies such as NCsoft. We believe NCsoft has numerous, notable investment merits.<ul>
<li>First, it has an outstanding line-up of new games in different geographies around the world in 2021.</li>
<li>Second, its ROE is improving materially.</li>
<li>Third, NCsoft's stock price is trading at a discount to historical valuations and there could be further valuation multiples re-rating on this stock in the coming months.</li>
<li>Fourth, China has started to approve new Korean games again.</li>
<li>Fifth, NCsoft and CJ ENM have agreed to form a new JV to roll out new digital contents aimed at the global market.</li>
</ul>

Although NCsoft's stock price  has performed well in the past year, we believe the stock is well poised to outperform the market again this year. NCsoft, similar to many other leading global game companies, have benefited from COVID-19 as millions of people in Korea and around the world have been forced to various forms of lockdown and spend more time at home.Currently, millions of people in countries such as are starting to take new vaccines for COVID-19. However, there are new mutated COVID-19 strains that have found to be 50%+ more contagious than the existing COVID-19 virus. These events suggest that the first half of 2021 will continue to be quite restrictive in major governments around the world including South Korea and U.K. continuing to impose various kinds of lockdowns and social distancing measures which mean that people in these countries will continue to spend a lot of time at home. This would continue to benefit leading global game companies such as NCsoft. We believe NCsoft has numerous, notable investment merits.
First, it has an outstanding line-up of new games in different geographies around the world in 2021.
Second, its ROE is improving materially.
Third, NCsoft's stock price is trading at a discount to historical valuations and there could be further valuation multiples re-rating on this stock in the coming months.
Fourth, China has started to approve new Korean games again.
Fifth, NCsoft and CJ ENM have agreed to form a new JV to roll out new digital contents aimed at the global market.


NCsoft: Key Catalysts and Valuation Sensitivity Analysis

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</div><div>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a>, <a href="https://www.smartkarma.com/entities/pccw-ltd" target="_blank" data-smartkarma-citation="entities:873:1" rel="noopener">PCCW Ltd (8 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> and <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a>. Shorts increased in Communication Services, Consumer Staples and Financials stocks and decreased in Consumer Discretionary names.</div><div>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a>, <a href="https://www.smartkarma.com/entities/ana-holdings-inc" target="_blank" data-smartkarma-citation="entities:5308:1" rel="noopener">Ana Holdings (9202 JP)</a>, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/familymart-co-ltd" target="_blank" data-smartkarma-citation="entities:320:1" rel="noopener">FamilyMart Co Ltd (8028 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a> and <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest Corp (6857 JP)</a>. Sectorally, shorts increased on Communication Services, while shorts were covered on Information Technology and Consumer Staples names.</div><div>Shorts increased in Korea for the week. Biggest increase in shorts were on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> and <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>. </div><div>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">Au Optronics (2409 TT)</a>, <a href="https://www.smartkarma.com/entities/acer-inc" target="_blank" data-smartkarma-citation="entities:15726:1" rel="noopener">Acer Inc (2353 TT)</a> and <a href="https://www.smartkarma.com/entities/catcher-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:4957:1" rel="noopener">Catcher Technology (2474 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/walsin-technology-corp" target="_blank" data-smartkarma-citation="entities:11084:1" rel="noopener">Walsin Technology (2492 TT)</a>, <a href="https://www.smartkarma.com/entities/nanya-technology-corp" target="_blank" data-smartkarma-citation="entities:3269:1" rel="noopener">Nanya Technology (2408 TT)</a>, <a href="https://www.smartkarma.com/entities/novatek-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:10904:1" rel="noopener">Novatek Microelectronics Corp (3034 TT)</a> and <a href="https://www.smartkarma.com/entities/ta-chen-stainless-pipe-co" target="_blank" data-smartkarma-citation="entities:2519:1" rel="noopener">Ta Chen Stainless Pipe Co (2027 TT)</a>. </div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on ICBC (H) (1398 HK), PCCW Ltd (8 HK), China Construction Bank H (939 HK) and Ping An Insurance (H) (2318 HK) while there was short covering on Meituan (3690 HK), Alibaba Group (9988 HK), HKEX (388 HK) and HSBC Holdings (5 HK). Shorts increased in Communication Services, Consumer Staples and Financials stocks and decreased in Consumer Discretionary names.In Japan, stocks that saw the most shorts were Nexon (3659 JP), Ana Holdings (9202 JP), Fast Retailing (9983 JP) and Sbi Holdings (8473 JP) while shorts decreased on FamilyMart Co Ltd (8028 JP), Toshiba Corp (6502 JP), Sumitomo Mitsui Financial Group (8316 JP) and Advantest Corp (6857 JP). Sectorally, shorts increased on Communication Services, while shorts were covered on Information Technology and Consumer Staples names.Shorts increased in Korea for the week. Biggest increase in shorts were on Samsung Electronics (005930 KS), SK Hynix (000660 KS), LG Household &amp; Health Care (051900 KS), LG Chem Ltd (051910 KS) and Naver Corp (035420 KS). Stocks in Taiwan that saw the highest increase in shorts were TSMC (2330 TT), Au Optronics (2409 TT), Acer Inc (2353 TT) and Catcher Technology (2474 TT) while shorts were covered on Walsin Technology (2492 TT), Nanya Technology (2408 TT), Novatek Microelectronics Corp (3034 TT) and Ta Chen Stainless Pipe Co (2027 TT). 

Asia Short Interest Weekly: ICBC, PCCW, Meituan, HKEX, Nexon, FamilyMart, Samsung, TSMC, Acer

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

The Korean government unveiled the specifics of the Korean version of the New Deal initiative.First, we will have a government-backed ₩20tril (US$17bil) fund, ₩3tril of which will come directly from the government (tax money) with an additional ₩4tril from state-run financial institutions. The remaining ₩13tril will come from the private sector and the public.Now, what's noteworthy is that we will see a set of new indices (designed by the KRX) specifically tracking the companies directly related to the New Deal Initiative.

The Korean government unveiled the specifics of the Korean version of the New Deal initiative.First, we will have a government-backed ₩20tril (US$17bil) fund, ₩3tril of which will come directly from the government (tax money) with an additional ₩4tril from state-run financial institutions. The remaining ₩13tril will come from the private sector and the public.Now, what's noteworthy is that we will see a set of new indices (designed by the KRX) specifically tracking the companies directly related to the New Deal Initiative.

Korea-New Deal Index: Constituents, Weights, & Market Reaction

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

<ul>
<li>Ownership levels in Yandex hit all-time highs in EM active portfolios</li>
<li>
<a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> overtakes <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a> as top overweight</li>
<li>Positioning and momentum levels are among the highest compared to Russian and Communication Services peers.</li>
<li>However, we still the potential for ownership levels to move higher still.</li>
</ul>Taken from our Global Emerging Markets analysis, comprising 248 active GEM funds, combined AUM $360bn.


Ownership levels in Yandex hit all-time highs in EM active portfolios

Yandex (YNDX US) overtakes Sberbank Of Russia Pjsc (SBER LI) as top overweight
Positioning and momentum levels are among the highest compared to Russian and Communication Services peers.
However, we still the potential for ownership levels to move higher still.
Taken from our Global Emerging Markets analysis, comprising 248 active GEM funds, combined AUM $360bn.

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Thematic (Sector/Industry)

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.
Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.
The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. 
The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.
We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.
We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.
Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.
Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.
The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. 
The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.
We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.
We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.
Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.

Asian Governance: Diversity & Incentives Through the Cultural Lens

South Korea

NCSOFT Corporation develops and markets on-line games that enable users to play over the Internet and computer software, such as web editing software.  The Company also designs and constructs databases, Intranet, and commercial Internet access systems.

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NCSOFT Corp (036570 KS)

NCsoft: Key Catalysts and Valuation Sensitivity Analysis

We believe NCsoft has numerous, notable investment merits, including an outstanding line-up of new games in different geographies around the world...

Douglas Kim

Asia Short Interest Weekly: ICBC, PCCW, Meituan, HKEX, Nexon, FamilyMart, Samsung, TSMC, Acer

We highlight the largest changes in short interest on stocks across Hong Kong, Japan, Korea and Taiwan to provide insight into the positions being...

Brian Freitas

Korea-New Deal Index: Constituents, Weights, & Market Reaction

The Korean government unveiled the specifics of the Korean version of the New Deal initiative.

Sanghyun Park

Yandex: Moves to Top Russia Overweight

Ownership levels in Yandex hit all-time highs in EM active portfolios Yandex (YNDX US) overtakes Sberbank Of Russia Pjsc (SBER LI) as top...

Steven Holden

Asian Governance: Diversity & Incentives Through the Cultural Lens

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and...

Bondcritic

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