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FANGMAN Is No Match for These 'Seven Princesses'

(Bloomberg Opinion) — Many have marveled at how the U.S. stock market has become dominated by Big Tech. Just a handful of companies — captured by acronyms such as FANG, FAANG and even FANGMAN — have emerged as winners in the Covid-19 world. 

This is by no means a phenomenon unique to the U.S. In South Korea, investors have crowded into what’s known locally as the seven princesses: two biotechs, two electric-vehicle battery makers and three internet companies. On average, they have rallied about 90% this year, outperforming FAANG stocks (Facebook Inc., Apple Inc., Amazon Inc., Netflix Inc. and Google parent, Alphabet Inc.). Together, the princesses account for more than 18% of the Kospi Index, promising to overtake the ultimate blue chip, Samsung Electronics Co. as the dominant market mover. 

South Korean equities have weathered a seismic shift this year. Retail investors, who dabbled in cryptocurrencies and all sorts of exotic structured products in the past, are now buying domestic stocks. They single-handedly supported the main stock index as foreigners fled. 

But unlike investors from abroad, who see the Kospi as a mere cyclical semiconductor play, locals are hunting for the next Samsung, one that will thrive in a society rewritten by trade wars and Covid-19. In their view, the smartphone supply chain is yesterday’s story. U.S. President Donald Trump was unraveling it well before the coronavirus outbreak. 

Instead, the Koreans are beaming with national pride at the sophistication of their advanced medical supplies and technology, and the country’s success in controlling the pandemic. Two of the princesses, Samsung Biologics Co. and Celltrion Inc., play right into that sentiment. 

Just as its sibling Samsung Electronics makes memory chips for Apple’s iPhone, Samsung Biologics seeks to leverage the conglomerate’s manufacturing prowess to make drugs and vaccines for Big Pharma. Earlier this month, the company laid out an ambitious plan to build a fourth plant, its largest by far, boosting its total capacity 71% and turning it into the world’s largest biopharmaceutical manufacturer. Meanwhile, Celltrion is introducing two coronavirus  testing kits in the U.S.; last month, its Covid-19 antibody drug entered phase one clinical trials.

EV battery manufacturing is another sector many Koreans see as Covid-proof (just look at Tesla Inc.’s stock). It’s also an area where the country already has an edge, given Samsung SDI Co. and LG Chem Ltd. are global leaders. The battery makers can see rising demand ahead. China has extended its EV subsidies until 2022 to support the industry, while the European Union has earmarked 30% of its 1.8 trillion euro ($2.1 trillion), seven-year budget for climate-related spending. 

And don’t forget, Korea has state-of-the-art internet infrastructure, which enables e-commerce and video gaming when people are stuck at home. Unlike traditional retail sales, Korea’s lockdown didn’t even make a dent in e-commerce. Online shopping has bigger penetration than in the U.S., accounting for about 30% of the total retail value versus 20%. This benefits Naver Corp., Kakao Corp. and video-game developer NCSoft Corp., the three internet princesses.

On a traditional price-to-earnings basis, none of the seven princesses is coming cheap. But what’s valuation in the world of easy money? As the Bank of Korea pushes its benchmark rate to near zero, future earnings — as far as a decade down the road — don’t need to be discounted.

You could even go a step further and argue the princesses are a more diversified bunch than FANGMAN, which all orbit around smartphones. The Koreans know better than to pin their hopes on one prince charming.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron’s, following a career as an investment banker, and is a CFA charterholder.

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