Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / South Korea ETF Surges on Memory Chip Revival
Transcript
- Lucas: Luna, take a look at this week's EM ETF numbers. The South Korea ETF, ticker symbol e w y, is up more than five percent in the last five days. That is the strongest gain among the major single-country emerging market funds we track, and it's happening while China ETFs like F-X-I and K-W-E-B are down two to four percent. Luna: Five point three percent, to be precise. And Taiwan's E-W-T is right behind it, up six point three percent. So the big chip exporters are having a moment. Lucas: Exactly. And it's not just a random bounce. The story here is memory chips — specifically DRAM and NAND flash, which are the backbone of everything from data center servers to smartphones. Samsung and SK Hynix, the two Korean giants, together control something like seventy percent of the global DRAM market. When that market turns, Korea's entire export machine feels it. Luna: And the turn is real. We've seen spot prices for DRAM stabilize over the past two months after a year-long decline. Analysts are pointing to ai driven demand for high-bandwidth memory, which is essentially a super-fast DRAM package used in training large language models. Lucas: Right. HBM, or high-bandwidth memory, is where SK Hynix has been particularly aggressive. They started mass-producing the latest generation, HBM4, late last year, and they're already sold out for 2026. That tells you something about the demand environment. Luna: So Korea is riding a genuine product cycle, not just a macro tailwind. But what about the currency angle? The yen has been weakening again — it's at one hundred fifty-eight point seven per dollar as of today — and that usually helps Korean exporters compete with Japanese rivals in areas like automotive and consumer electronics. Lucas: It's a double-edged sword. A weaker yen does make Japanese memory chip makers like Kioxia more competitive on price. But in practice, the memory market is so concentrated that pricing is driven by supply discipline and demand, not currency moves. Still, the won has also weakened against the dollar this year, so Korean exporters are not losing ground. Luna: Let's talk about the broader EM context. The iShares MSCI Emerging Markets ETF, e e m, is up one point nine percent this week. So Korea's outperformance is notable, but it's not a total outlier. What's driving the broader recovery? Lucas: Part of it is the dollar. The trade-weighted dollar index is at one hundred nineteen point three, which is down from its recent highs. A weaker dollar historically lifts EM assets because it reduces the burden of dollar-denominated debt and makes commodity prices more attractive. But I think the bigger story is differentiation. The EM basket is not a monolith. China is struggling with deflation and a property crisis; India is still growing but expensive; Latin America is mixed. Korea and Taiwan are benefiting from a specific tech cycle. Luna: And that cycle has legs. The global semiconductor industry is forecast to grow about twelve percent this year, driven by AI chips and memory. Korea's exports of semiconductors in April were up nearly twenty percent year-over-year. Lucas: That's the number that jumps out. When you look at Korea's overall trade balance, it swung back into surplus this year after a deficit in 2025. The chip recovery is literally funding the country's energy imports and other needs. Luna: But there are risks. The U.S. trade deficit in goods widened in March to over sixty billion dollars. If the Trump administration renews tariff pressure on countries with large surpluses, Korea could be in the crosshairs. They have a significant trade surplus with the U.S., especially in autos and electronics. Lucas: It's a real concern. The headline you see today about Kevin Warsh and Fed plumbing is mostly about domestic monetary policy, but the broader environment of trade uncertainty hasn't gone away. Still, for now, the market is rewarding companies with real earnings momentum, and Korean memory makers have that. Luna: So if an investor wanted to play this theme, e w y is the obvious vehicle. But the fund has a heavy concentration — Samsung alone is about twenty-five percent of the holdings, and SK Hynix is another ten. That's a lot of single-stock risk. Lucas: It is. But if you believe in the memory cycle, those two stocks are precisely the ones you want exposure to. Samsung is also the world's largest smartphone maker, and they have a foundry business, though it's lagging TSMC. SK Hynix is more pure-play memory. Luna: And for Taiwan, E-W-T is even more concentrated in TSMC, which is nearly thirty percent of the fund. But TSMC's story is different — it's logic chips, not memory, driven by AI accelerators from NVIDIA and AMD. So the two ETFs are actually playing different parts of the tech ecosystem. Lucas: Right. And Taiwan's outperformance this week — up six point three percent — likely reflects relief that the U.S. has not escalated semiconductor export controls further. There was some fear that the Biden-era restrictions on chip equipment sales to China would be tightened, but so far the administration has been more focused on domestic manufacturing incentives. Luna: Let's zoom out for a moment. The MSCI Emerging Markets index is still down about eight percent from its high in early 2025. So we're not talking about a new bull market. This is a cyclical rally within a longer-term consolidation. Lucas: Absolutely. And the key question is whether the memory cycle can sustain itself into 2027. Historically, the DRAM cycle peaks about every two to three years. We're coming off a trough in late 2025, so we might have another twelve to eighteen months of upswing. But the market will start discounting the peak long before it arrives. Luna: What would cause the cycle to end prematurely? Oversupply is always a risk — Chinese memory maker YMTC has been ramping up NAND production, though it's still a small player. And if global GDP slows sharply, demand for PCs, smartphones, and data centers could weaken. Lucas: Those are the risks. But for now, the data is supportive. The Philadelphia Semiconductor Index, the SOX, is near an all-time high. And the earnings calls from Samsung and SK Hynix in the past month have been notably optimistic. Both companies guided for higher capital spending this year, which is a sign they expect demand to remain strong. Luna: One last angle: the valuation. e w y trades at about eleven times forward earnings, which is below its five-year average of thirteen. So it's not expensive, even after the recent run-up. That makes the risk-reward more attractive than, say, India's i n d a, which is at twenty-two times. Lucas: Exactly. India has been the darling of EM investors for two years, but you're paying a premium for that growth. Korea is offering a similar earnings growth trajectory — high single digits — at a much lower multiple. That's the kind of value that often gets discovered when the broader EM environment stabilizes. Luna: So what's the play? Is it a buy on pullbacks, or is it already too late? Lucas: I wouldn't chase it after a five percent week. But if you're a long-term investor, Korea's equity market is undergoing structural improvements — higher shareholder returns, better corporate governance — and the chip cycle provides a near-term catalyst. I'd say it's a position to build into weakness, not a momentum trade. Luna: That sounds like a sensible approach. And it's a reminder that in emerging markets, the real alpha comes from understanding the cycles beneath the index. Korea's memory chip revival is a textbook example. Lucas: It is. And we'll be watching to see whether the rally broadens to other sectors — like Korean autos or batteries — or whether it remains a chip story. Either way, it's the most interesting trade in EM right now.