Morning from Copenhagen!

It seems like the South Korean madness is slowly fading today after Yoon declared Martial Law yesterday afternoon. While its effects were temporary in asset space, it made me wonder whether there is something to catch in South Korea now that it’s trading relatively cheap after yesterday’s events.

We know that there is an ongoing game of tit for tat between China and the US, with China responding to Trump’s rigorous statements on tariffs and trade restrictions by banning exports of Gallium and Germanium, which are crucial elements in the production of chips. The US is around 50% import reliant on Germanium, while they are 100% import reliant on Gallium, which makes this move an interesting cocktail given that a lot of US equity strength has been solely based on AI/NVIDIA.

There are no doubts that the US will find a way to get their chips produced anyways, and we have seen plenty of times how goods have simply been rerouted to avoid tariffs, restrictions etc. – so the question becomes, who stands to benefit from the renewed trade war between China and the US?

It’s not completely out of the question that South Korea will be the intermediary between supplying rare earth metals/chips from China to the US given that they have the infrastructure to handle chip manufacturing/shipments, and we could hence look into a scenario where manufacturing of chips in South Korea increases significantly going into 2025. The performance of South Korean equities tracks very nicely with the amount of semiconductor shipments, and we’ll monitor this as a contrarian trade case – especially also given the turmoil in South Korea at the moment.

Chart 1.a: Korea looks like the perfect intermediary between US and China