Fidelity fund sees rebound for Korea chip stocks

THE rally in Korea’s biggest chip stocks may have paused, but the manager of an US$18 billion technology fund at Fidelity International sees a fresh run of gains just around the corner.

“The memory cycle is nearing or potentially at a trough, and artificial intelligence (AI)-related investment is likely to drive a strong demand recovery,” Hyun Ho Sohn, who oversees Fidelity’s Global Technology Fund in London, said in an interview.

Weak earnings are priced in, and positive guidance from management may start to push stocks higher again, he added.

The global surge in semiconductor stocks is taking a breather in July as companies face an earnings reality check and some investors book profits. According to stock bulls, the worst may have passed after a dismal preliminary revenue report from Samsung Electronics as electronics companies work through bloated stores of memory chips.

Investors from BlackRock to JPMorgan Asset Management continue to pile into semiconductor stocks, touting the prospects of AI. Sohn said he’s more “realistic” on the promise of AI but noted that some global chip shares are still trading near book value, “which makes for a compelling valuation prospect”.

The Fidelity fund is up 24 per cent this year, outperforming 45 per cent of peers, while it has beaten most over a five-year period. It increased holdings of Samsung and its South Korean peer SK Hynix in May.

Shares of Samsung and SK Hynix have slipped this month, trimming their 2023 rallies to 27 per cent and 50 per cent, respectively. Despite the gains, shares of both companies are trading at less than 1.3 times book value compared with 5.3 times for a gauge of US chip stocks, whose valuations have swelled on the AI theme.

The world’s largest memory chipmakers are slated to report their full second-quarter earnings this week.

In addition to the memory makers, Sohn said that his fund is betting on “underappreciated” beneficiaries of AI, including data infrastructure companies. Success will depend on “the cost, compliance and regulatory hurdles enterprises will have to meet (to) use AI applications”, he noted.

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Meanwhile, Sohn has turned “more positive” on Chinese tech stocks after signs of easing of regulatory crackdowns and more support from Beijing for private enterprise. The fund increased its position in Tencent Holdings in the second quarter, according to data compiled by Bloomberg.

He is “underweight” on the US due to “generally less attractive valuations”. Still, the Nasdaq 100 Index’s 41 per cent advance this year may “ultimately be more sustainable than was the case in 2000”, as technology demand is more diversified beyond Internet ventures, he added. BLOOMBERG