Large Korean Fund Starts a Patriotic Bet Amid Anti-Japan Movement

(Bloomberg) -- After Japan waged a trade war against South Korea last month, an asset manager in Seoul was quick to turn the tensions into an investment strategy.

NH-Amundi Asset Management, which manages about 40 trillion won ($33 billion) of assets, has launched a Korean equity fund that invests in local suppliers that may benefit from Japan’s restrictions on exporting some key materials and parts to Korea. The firm sees rising public angst in South Korea over the trade curbs and said it will donate part of the investment fees to the local institutes that develop the industries affected.

“Considering Japan’s export curb is becoming a threat to industries but also to national security, even if the conflicts between two countries are eased, the South Korean government and companies will continue to develop local industries for parts, materials and equipment,” said Heeseok Jung, manager for the fund that’s so far been allocated about $24 million since its inception on Aug. 14.

Jung believes more Korean firms will increasingly use products made by local suppliers that have been competing with overseas makers, which will eventually boost their potential earnings growth.

Japan said last month it would impose export restrictions on three key materials critical for manufacturing memory chips, and Prime Minister Shinzo Abe’s cabinet this month removed South Korea from a list of trusted destinations. The move is expected to take effect at the end of August.

Read here: Samsung Suppliers Rally on Bets Japan Curb Will Spur New Orders

Localization

Although Jung expects it to take years for Korean firms to “localize” key parts for their products, he said the government and industries are making efforts to secure skills and technology for the long term.

NH-Amundi Victorious Korea Equity Fund will donate half of its performance fees to Korean universities focused on the type of materials and parts that Japan may impose curbs on, including those used by the semiconductor industry. It charges a 0.5% performance fees, lower than the industry average, according to the firm.

Besides semiconductors, the fund may invest in other Korean industries that may face additional restrictions from Japan, such as secondary batteries, auto parts, display, shipbuilding and finance. The Moon Jae-in government has already pledged to nurture those industries in expectations of further curbs.

“When the earthquake occurred in Japan in 2011, South Korean companies struggled to obtain parts from Japanese suppliers for automobiles, semiconductors and smartphones,” Jung said. “At that time, although the supply from Japan resumed later, Korean firms gradually developed some parts by themselves.”

For Jung, the biggest beneficiary from Moon’s support would be the semiconductor industry, which he said gets only 27% of its materials and equipment locally.

“The first will be semiconductor industry, and then the next would be displays, which get only 45% of parts from local makers,” he said. “Film and adhesive materials for displays have been very dependent on overseas makers.”

To contact the reporter on this story: Heejin Kim in Seoul at hkim579@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Margo Towie

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