Equity Long-Short, Semiconductors, Fabricated Knowledge

Douglas O'Laughlin

Equity Long-Short, Semiconductors

Fabricated Knowledge

Learn more about the world's most important manufactured product. Meaningful insight, timely analysis, and an occasional investment idea.

Thematic (Sector/Industry)

<ul><li>The year 2023 began with a significant downturn in the semiconductor market.</li><li>Significant capacity additions were brought on after the historic shortages due to COVID-19, and then demand wobbled as interest rates quickly rose.</li><li>Supply outpaced demand, and the market turned into a period of oversupply.</li></ul>

The year 2023 began with a significant downturn in the semiconductor market.Significant capacity additions were brought on after the historic shortages due to COVID-19, and then demand wobbled as interest rates quickly rose.Supply outpaced demand, and the market turned into a period of oversupply.

Semiconductor Outlook 2024: AI's Adolescence

<ul><li><p>Semicap is strong, Subsystems are not. That will change.</p></li><li>I think <a href="https://www.smartkarma.com/entities/mks-instruments-inc" target="_blank" data-smartkarma-citation="entities:5970" rel="noopener">Mks Instruments (MKSI US)</a>, <a href="https://www.smartkarma.com/entities/ultra-clean-holdings-inc" target="_blank" data-smartkarma-citation="entities:19849" rel="noopener">Ultra Clean Holdings (UCTT US)</a>, and <a href="https://www.smartkarma.com/entities/ichor-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26449" rel="noopener">Ichor Holdings (ICHR US)</a> are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.</li><li>The factor-driven size difference drives the opportunity, and they should benefit well on a relative basis next year.</li></ul>

Semicap is strong, Subsystems are not. That will change.I think Mks Instruments (MKSI US), Ultra Clean Holdings (UCTT US), and Ichor Holdings (ICHR US) are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.The factor-driven size difference drives the opportunity, and they should benefit well on a relative basis next year.

Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Equity Bottom-Up

<ul>
<li>Memory names have rallied strongly, with Nanya Tech outperforming since the start of November.</li>
<li>DRAM bottomed and NAND flash prices have jumped. Micron says that 2025E could be a record year for the Memory industry.</li>
<li>High valuations make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK Hynix or Long Micron vs. Short Nanya Tech.</li>
</ul>


Memory names have rallied strongly, with Nanya Tech outperforming since the start of November.
DRAM bottomed and NAND flash prices have jumped. Micron says that 2025E could be a record year for the Memory industry.
High valuations make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK Hynix or Long Micron vs. Short Nanya Tech.


Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>Following the short sell ban announced on the weekend, the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">KOSPI 200</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150</a> opened higher on Monday and rallied through the day.</li>
<li>A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.</li>
<li>Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.</li>
</ul>


Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.


Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Korea Stock Exchange KOSPI 200 / Event-Driven

<ul>
<li>Korea banned all short selling in March 2020 and resumed short selling only on <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">KOSPI 200</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150</a> index constituents in May 2021.</li>
<li>News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.</li>
<li>There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.</li>
</ul>


Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.


Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

South Korea

SK Hynix Inc. provides products and services for the electronic components industry. The Company manufactures semiconductors, such as dynamic random access memory (DRAM), NAND flash memory, and static random access memory (SRAM) chips.

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SK Hynix (000660 KS)

Semiconductor Outlook 2024: AI's Adolescence

Its time to jog your memory. We've gone through the downturn, what does an upturn look like? The year 2023 began with a significant downturn in the...

Fabricated Knowledge

Why Subsystems Now

I think MKSI, UCTT, and ICHR are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.

Fabricated Knowledge

Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot

High valuations and the recent bull run make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK...

Vincent Fernando, CFA

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Not a lot of shorts were covered on Monday. There could be more covering in the near term as the market drifts lower. KOSPI200 underperformed...

Brian Freitas

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

Media reports indicate that there could be a temporary short sell ban in Korea. This could lead to futures backwardation, market manipulation and a...

Brian Freitas

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