Daily Value Investing: Amorepacific Group and Corp Pair Trade and more

In this briefing:

1. Amorepacific Group and Corp Pair Trade
2. South Korea’s Plummeting Population Growth – Long Term Structural Impact on Korean Banks
3. AAC Tech (2018): Damage Is Done While Business Remain Intact – BUY

1. Amorepacific Group and Corp Pair Trade

This insight delves into make or break levels for a pair trade in being long Amorepacific Group (002790 KS) (APG) over Amorepacific Corp (090430 KS) (APC) with key hurdles/targets and floor support.

Curtis Lehnert puts forth the fundamental argument in TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity and we thought pivotal chart points would help round out this trade idea.

Holding floor support is vital for this trade to work. In absolute terms both APG and APC display similarly weak chart structures with risk of a final bout of weakness. APG displays a more depressed chart reading however.

2. South Korea’s Plummeting Population Growth – Long Term Structural Impact on Korean Banks

It was reported that South Korea’s population increased only 0.09% YoY at the end of 2018. The population growth has been declining in the past three decades in Korea. The population growth rate of 0.09% YoY in 2018 is even lower than the growth rate of 0.16% YoY in 2017. (Source: Korean Ministry of the Interior and Safety) The previous general estimates by various government agencies/research institutes of when the population in South Korea would decline were around 2028-2032. 

With the new available data, it is likely that these estimates will be revised drastically. In fact, it is possible that South Korea’s population could start declining around 2020-2022, contrary to previous estimates that suggested that South Korea’s population to start declining around 2028-2032.

The two leading Korean banks including Shinhan Financial (055550 KS) and Kb Financial Group (105560 KS) have been in a decade plus bear market. While these stocks may move up or down 10-15% within a short period of time, we think they are a structural, long-term short. Bank of Korea has been hesitant on raising the base interest rate. There are simply an overwhelming pressure to not to crash the real estate market. Because of this enormous pressure, the Korean banks have been losing out on the higher interest rate spreads they could have earned if the interest rates were raised much higher.  

3. AAC Tech (2018): Damage Is Done While Business Remain Intact – BUY

The recent trade talk meeting between the US and Chinese government went into an extended unplanned third day which could be seen as a positive development – a sign that both sides are serious on getting a deal done. President Trump’s  recent tweet citing “”Talks with China are going very well!” has been responded positively in Asian equities market. Is it all just that or are there more in the company?