The AI Chip Bubble: Why South Korea & Taiwan Are In the Danger Zone | Michael Fritzell | Asian Century Stocks

68m 16s

Michael Fritzell, author of Asian Century Stocks, joins the podcast to discuss equity opportunities across Asia. He identifies South Korea's memory chip sector as a potential bubble, citing unrealistic forward profit estimates for SK Hynix and Samsung Electronics and the impending arrival of Chinese supply in 2027. In contrast, he views TSMC as a more sustainable bull market due to its pricing discipline and critical bottleneck position. Fritzell notes extreme retail speculation in Taiwan and South Korea, with stock prices reacting violently to minor news and technical analysis dominating trading activity. Japan's bull market, driven by a weak yen and corporate governance reforms, may be nearing its peak, leading smart money to shift toward Korean small caps. Korea's recent reforms to inheritance tax, dividend tax, and director liability are creating a wave of activism and value opportunities. China remains challenged by property market busts, US tariffs, and unpredictable regulatory crackdowns. Fritzell favors Southeast Asia, particularly Thailand and the Philippines, for deep value plays, while Indonesia has become less attractive. He also discusses Nintendo's short-term headwinds from rising memory prices and a thin game slate, but remains optimistic about its long-term prospects.

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Speaker 1South Korea, I do think it is a bubble because the estimates for forward profits for SK Hynix and Samsung Electronics, we're now talking 200 billion US dollars in net profit estimates for 2028. That will make them the most profitable companies in the world. These are companies that produce commodities. I wouldn't say that the memory chip cycle is over. In fact, I'm not able to confidently predict how the cycle is going to move. But I'm also very, very confident that these Chinese competitors that have been trying to improve their yields, they are now very profitable and they will come with new supply in 2027 onwards.

Speaker 2Welcome to Other People's Money. My name is Max Wheatley. I am joined today by Michael Fritzell, the author of Asian Century Stocks that, as its name suggests, focuses on equity research in Asian companies. Michael, thank you for coming. It's an absolutely fascinating time. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. I'm so excited to be here.

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Speaker 1I'm so excited to be here. I'm so excited to be here. I'm so excited to be here. Prices, I'm talking about the commodity DROM. HBM might be different, but at least for commodity DROM, there is a daily price, and that to me is a commodity. If you can track inventories and track prices daily, that means they're standardized enough. And we also have three or five companies competing. Will they want to take market share? To avoid that kind of, to maintain pricing discipline in this environment, I think it would be very difficult. So we're talking logic chips, TSMC. That's a completely different calculus because they haven't raised prices that much. There's still a huge bottleneck. That is to say, TSMC is that bottleneck because they haven't increased their production that much. So that, to me, is a lot more sustainable, the bull market. But again... But even in Taiwan, the amount of speculation on the ground is astounding. I'm talking about retail speculation, and this probably goes beyond what we saw in 2020. Perhaps not as extreme as 1989, 1990, but it feels like we're in some stage of a bull market. Maybe it will continue for another few years. But it's pretty clear to me that... We're some way through this AI boom, for sure.

Speaker 2What are some of the examples, when you say you would not believe the speculation that I'm seeing on the ground, are people taking out second mortgages on their homes, cashing in retirement accounts to go all in on single stocks? What is the type of behavior when you're saying the speculative fervor is reaching a level? Is it just, it's the only conversation, if you walk into a market, people are not talking about the products and goods being sold. They're talking about the stocks they're trading. What are the hallmarks of the speculation that you're seeing on the ground?

Speaker 1Well, I haven't been to Taiwan since last year, so I had secondhand information. But in terms of how prices move, typically, when there is a particular theme, like optic stocks, and just by being mentioned as a potential beneficiary of data center construction, when there is a particular theme, like optic stocks, and just by being mentioned as a potential beneficiary of data center construction, When there is a particular theme, like optic stocks, and just by being mentioned as a potential beneficiary of data center construction, when there is a particular theme, like optic stocks, and just by being mentioned as a potential beneficiary of data center construction, for example, I previously owned a share called Lorgan. They produce these optics for smartphones. And they're now starting to produce similar types of optics, but for data centers. And that would be a very small business for them. But the stock price reacting in a violent way, that to me is a sign that there's a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. And I also see a lot of speculation in the market. Suddenly, on Twitter, I spent too much time on Twitter, you see all these accounts which never existed before. And they're all talking about K-lines and that kind of technical analysis. And I also see a lot of speculation in the market. And they're all talking about K-lines and that kind of technical analysis. And I also see a lot of speculation in the market. And they're all talking about K-lines and that kind of technical analysis. And I also see a lot of speculation in the market. And they're all talking about K-lines and that kind of technical analysis. And I also see a lot of speculation in the market. And they're all talking about K-lines and that kind of technical analysis. And just look at the overall index. It's been astounding, the performance it's had. Of course, TSMC is almost half of the index, but prices are very high in Taiwan. Like average P ratios closer to 30, something like that. I mean, it's a very different story than small cap Asia, for sure.

Speaker 2Now, what about Western participation in this? We were talking somewhat about the local participation in these markets. We just got access through interactive brokers to South Korean stocks for the first time. You could have bought Taiwan before. Obviously, TSMC is in many ways the most popular stock, SK Hynix, Samsung on the Korean side. And so I'm wondering, are you seeing, are you seeing increased interest as well from Western investors in these markets? And is that new compared to these previous bubbles in Asia?

Speaker 1Since interactive brokers, they open up access to South Korea, both KOSPI and KOSDAQ. There's been a lot of interest among Western investors. I think they can relate to Korea in a way that they perhaps can't with the Philippines or Thailand. And so I've seen, a great deal of interest, almost as much interest as there's been in Japanese stocks over the past few years. Japanese stocks have run quite a bit. They're actually a bit more expensive now. So there is for sure interest. I think retail investors, the typical Western investors, they would invest in US tech stocks like Micron. And you would have to be more adventurous to get into SK Hynix or SK Square or any of the other Korean listed companies. So I wouldn't say, I'm seeing a lot of interest. And when it comes to Taiwan, people are only investing in TSNC and for some reason they are very concerned about the invasion risk. But when it comes to TSNC, they forget about that. They just kind of close their eyes and invest. But there's nothing else in Taiwan that's really like when I write deep dives on particular stocks in Taiwan, I see almost no interest. They are. They want to invest in TSNC or nothing else. That's my experience.

Speaker 2Interesting. Well, before this huge run in Taiwan and Korea, Japan was actually leading a lot of the Asian markets because of reforms to capital markets. I know Korea is actually starting to institute some reforms. It seems like China is maybe going backwards. So we're seeing a lot of regulatory changes happening in the region. Talk to me about how capital markets are changing. How capital markets are evolving in those three markets.

Speaker 1Yeah, so we've had a proper bull market in Japan. I think the Nikkei is back to 1989 levels, which took them a long time, but it's back there. And this bull market has really been driven by the weak yen. And that itself is due to the interest rate differential with the United States. I think like US rates came up 2022. They never had much of a stimulus, they didn't have many COVID-19 stimulus packages. But for some reason, you know, rates have gone up a lot more in the US and Japan, the Japanese yen fell precipitously. Now we're 160 almost to the USD. And that's been a boom, like that's been a very positive thing for most of the companies in Nikkei and to a lesser extent Topix, which is more of a small cap index or a mid cap index. That's that's part of the reason why we had this kind of sustained bull market in Japan. And and I think Japanese fund managers, they've been chasing export companies because that's where you've seen growth and people haven't wanted to have too much yen exposure. So Nikkei has really been where they've, you know, hid. And at this point, we've also had, of course, corporate governance reforms since 2023, I suppose the token stock exchange have almost. And at this point, we've also had, of course, corporate governance reforms since 2023, I suppose the token stock exchange have almost. shamed companies into improving the return on equity. And I think shaming in Japan works due to their cultural, for cultural reasons. So companies have issued these these plans on how they will improve their capital allocation. We've seen a lot more buybacks, we've seen cross shareholdings being reduced, which is fundamentally, of course, friendly to minority shareholders, we've seen a market for corporate control. We've seen a lot more buybacks, we've seen cross shareholdings being reduced, which is fundamentally, of course, friendly to minority shareholders, we've seen a market for corporate control. being formed in Japan, which didn't exist before. So finally, you know, there's like a value anchor in these companies, and for good reason, they've been traded up. But but that bull market, it feels like it's almost run its course at this point. And and a lot of activists, such as, for example, asset value investors in the UK, Oasis, Dalton, they're all hiring people in Korea now, because Korean exchange, they're doing the same thing. And and a lot of activists, such as, for example, asset value investors in the UK, Oasis, Dalton, they're all hiring people in Korea now, because Korean exchange, they're doing the same thing. Almost as Japan is doing, in terms of trying to shame their listed companies to improve their capital allocation. And there's been a few issues in Korea, like there's always been a discount of Korean equities to Japan. But I think the government now under, you know, the current Prime Minister, they are due, they understand the issue behind this persistent discounts. And I feel like now the smart money is running out. It's really moving to Korean small caps. And people, whenever I mentioned that people say, why would you invest in Korea, the market is up, you know, X hundred percent. But they don't realize that actually small caps have been selling off, you know, last few weeks, like last two months, they're they're really sold off. And you can find single digit P stocks like solid quality companies, growing companies at single digits, P ratios. It's astounding. So And just quickly, I mean, what would the issue with Korea has been threefold, one is the inheritance tax 50%, when the older person passes away, you use the market value of the shares at the time of passing. So a lot of families, they've kind of minimized the share price, so that's so they don't get hit, you know, with a huge tax bill. talk about potentially uh reform that a little bit you know you will need to reform it completely but on the margin it looks like some companies will actually use book value instead of market value that would help with the disincentive somewhat dividend tax is another issue now they reduce the dividend tax for high dividend payers that's reducing that issue and the third issue that they fixed in 2025 is that in the past directions they didn't have a liability uh towards all shareholders they weren't liable to act in the best interest of all minorities where today they are so if there is a related party transaction in a korean listed company you can sue directors like they are personally liable so since 2025 i think the number of like related part transactions and have have gone down so it's it's super exciting i think we're gonna see a wave of activism in korea and who knows what happens with this memory chip you know bull market but like fundamentally if you're a stock picker i feel like you know it's time to move on from japan and look for towards korea like this is where you get the the juiciest stories with the most upside if and when you know you get to activism in these stocks

Speaker 2yeah it was surprising to me obviously there was a big talk here in the u.s when uh trump implemented his tariffs last year and and foreign markets started to outperform the narrative was oh my gosh people are getting rid of the dollar they're they're repatriating capital and coming home and people were pointing to the performance of uh the all-country world index uh the emerging market indexes and saying look uh this is happening this is this is it's showing up in the price and if you dig deep down taiwan and south korea are are huge contributors to that outperformance and it's really the same ai trade that's happening here in the u.s and and so people would say you know south korea is supposed to this very advanced society these are high-tech companies it's hardware mostly not software um or or these big tech uh you know the the hyperscalers that we have the fang companies um here in the u.s but at the same time uh it is still considered an emerging market and it's it's largely because of those governance issues and and uh they're they're called what kybels right the uh in korea yeah yeah the family conglomerates they control everything they they own everything and so you're saying that they've actually had their power reduced slightly

Speaker 1they had had the power reduced and and this goes for all you know family companies so in the u.s you have a very well-functioning market for corporate control like private equity companies will will bid you can you can sell your company to a professional management team and you know manage buyouts and so on that doesn't quite exist in in east asia a lot of the companies are family owned and and they typically leave the the company to the next generation uh and that has also you know all sorts of issues uh something electronics for example it's now in the third generation uh as he is he is talented as as generation number two that's a big question maybe not and if you look at the i mean samsung is a very successful successful company but if you look at the cross cycle return equity it's not more than 10 maybe like nine percent which is astoundingly low so capital allocation has been lacking it's not just something almost most of these family-owned companies have you know arguably they've they've optimized for tax minutes minimization and it just happens to be the case that it's been negative for minorities um so i think that's going to improve and um and yeah like to your point now emerging market index is like 50 korea taiwan or almost which is just bizarre i

Speaker 2mean these countries are fairly rich actually okay and so you said there's opportunity within korea within the small caps what are the the sectors that you think are are interesting um and trading at attractive valuations in korea right now it's really across the board it's

Speaker 1anything that that's non-tech related that's the entire focus is on tech i mean there's a lot of things to look at in korea i mean there's a lot of things to look at in korea there's a lot of things to look at in korea there is there is no uh you know speculative euphoria in anything else so consumer companies uh industrious companies frankly like software as well like it's a fairly small sector but there are some software companies that's been sold off uh i just wrote about this uh the korean version of fico called nice times p e ratio it's just across the board and um perhaps some of those are partially related to the ai fears i mean fears of generative ai disrupting them um but but no i mean i i like to look at the insider buying and there's plenty of inside buying in korea a lot like it's one of those countries where you see a lot more buying than selling and the buying is is also broad across consumer uh industrials and so on

Speaker 2okay now uh you talked about consumer companies at least uh from my perspective here in the u.s if we're thinking about um exports korean beauty seems to be all over is that an interesting sector for you and does it maybe because of its international exposure uh trade slightly more expensively than some of these more domestic focused industries the beauty sector i i guess

Speaker 1there are two parts of it one is the cosmetics industry you have cosmetics brand uh like amore pacific and lg household health those are the two big ones and then you have these odms which make cosmetics for for chinese brands and other brands um both lg you know h and h and also a more pacific they had this boom in china that eventually uh went away they stopped buying korean cosmetics perhaps with nationalism perhaps due to something else uh in any case and now both of them are trying to reorient themselves towards western audiences um and i think it's working at least for amore they own amazing brand names like sulbazoo for example uh the face shop like they or laneige so they have amazing brands i would say on par with with maybe japan and they have more of this uh cultural influence through k-pop and k-drama so that to me is a super interesting theme i'm sometimes a little bit surprised how unprofitable they are i feel like if they were run as u.s companies they would be have higher margins high returns on capital um cosmetics though it's a little bit tricky because you have cycles you know you know one year there's uh stale cream this is is popular and then next year something else is popular uh so the industry is a little bit hard to to predict um for last few years we've seen i one stock that i wrote about called samyang foods they make the spicy ramen and that really took off it's it's unrelated to to k-pop but i think um partially because of the influence of k-drama and so on i think maybe that helped reach a western audience and and suddenly foods in particular has done really well in the u.s so you can find their their noodles in in walmart and costco and so on so i think it's always interesting to have that in your back of the mind if a korean company were to expand overseas um because um because of the influence that they have through i mean i can

Speaker 2tell you that i i have heard people that i never would have expected saying seeing somebody walking around with an h-mart bag which is the korean supermarket chain here in the u.s and you know this is not the type of person that you would expect to say oh where's the h-mart um the interest in in korean brands and korean consumer products is extremely interesting uh i went to um halloween obviously here in the u.s is is massive and i went to a street that serves something like 10 000 trick-or-treaters it's maybe the most congested street of trick-or-treating in the united states and i cannot tell you the amount of k-pop demon hunters stuff that i saw i mean it's very clear the cultural exports japan very much in the business of cultural exports to the west um i'm interested in how how those trends influence consumer exports more broadly if it's just purely the culture does it make its way down into goods

Speaker 1speaking about k-pop people hunters which was a massive success i mean in asia as well across asia um so cosmetics of course i mentioned that but uh capable hunters they they had a cooperation agreement with nongshim which is another noodles maker and they had a spec special packs with the branding you know one for each of the characters from from the show um so i think these types of collaboration probably help popularize them overseas um but it it is a little bit hard for me to find us like something investable the the studios themselves like they're not they're hits driven uh there is a company that makes uh like these containers for for cosmetics they're doing really well companies called pumtech so there are suppliers like that uh but exactly you know what type of products are going to to benefit i i wish it was more simple from a you know ball map point of view or just like invest from the top down but um yeah i'm still looking for something really good like some young foods has been one of the you know great stories there's been apr corporation has also done well uh but um yeah right now i don't have any such

Speaker 2ideas so what you're saying is for western investors we are going to actually have to look beyond what we see in our own backyard to find the truly exciting companies in asia

Speaker 1i would say the best way to find ideas is to not wait until they reach the u.s because for example coming back to samyang foods they went to the u.s as the last destination so it wasn't obvious you know if you waited until then the story had already played out more or less i would more look at insider buying um and now my mind is on noodles for some for whatever reason but there's been insider buying in nongshim and i'm not saying that's a necessarily a good buy but that is interesting to me um there's insider buying also in in the liquor sector like they have soju which are which is kind of like a rice wine uh i'm not exactly sure why to be honest but uh these are trading pretty well so i'm not saying that's a good buy but i'm not saying that's a good

Speaker 2buy but i'm not saying that's a really low low multiples too there is one company that has actually been hurt by the ai trend that is in the business of exporting culture all around the world and that's nintendo um so nintendo was was doing very well and as memory prices started to rise nintendo stock has has dropped i think over 50 at the same time as the super mario galaxy movie has you know broke broke records at the box office uh nintendo switch 2 has has actually performed relatively well in sales but people seem extremely focused on the memory story and that seems to be the only factor driving the stock it's one of the the larger stocks in the region um i'm interested in what you think about memory's weight on some of these electronics companies and particularly nintendo

Speaker 1there is a you know a real headwind i think because memory prices have gone up a great deal it certainly affects the profitability of their console business and they're trying to hedge through slightly higher prices and bundling and so on but for sure it's going to be a tough year for nintendo and they had some inventory it's going to go out it's going to last perhaps until august so there is a real issue here and i can't say that it's going to be a big deal but i think i can totally understand why short-term you might want to sell it's not all related to to d-rom though they there was been there's been this hope that october is going to be the the release date for a new 3d mario game perhaps super mario odyssey 2 or super mario galaxy 3 they used to have at the week in the wii era they had another uh two more super mario galaxy games there's a hope for mario game coming out for the christmas season 2026 and it doesn't look like that's the case instead they're replacing it with a ocarina of time remake which is a nintendo 64 game i think uh so it looks like the 2024 2026 sorry uh christmas season is going to be pretty thin for nintendo and i think that's what's been weighing on the share price uh so there's maybe some nervousness about the upcoming uh investment and i think that's what's been weighing on the investor communication where they will you know perhaps um announce a not particularly strong slate for for the christmas season 2026 and this comes also at a time when when gta 6 is going to be released in november which is going to help their competitor sony playstation 5 so they're in a bit of a middle year like we know that the the top franchises globally like gta is one of them story is one of them zelda is one of them and it just happens to be that they don't have uh anything this this year um but i think at this point the stock is down almost 50 percent and i i think you're starting to see uh d-run prices i wouldn't say that they're they're peaked or anything but um it feels like we are getting to a point where settlement cannot get so much worse than this and and it's going to be a very strong 2027 for nintendo with a zelda movie uh potentially a 3d model game coming out uh like the switch 2 is fantastic console the only issue with the console uh is the fact that there is no there hasn't been a blockbuster game yet doesn't

Speaker 2that speak to execution right and so if you have a company that had this huge console with much fanfare around it and they didn't think about the titles and specifically the titles that they control i mean it's one thing if you're if you're sony and and i don't believe sony has the same sort of um ip and creates their own games they're relying on these other uh video game studios to produce them you're kind of beholden you work with your partners but nintendo is developing these games themselves and so it to me would would would say you know what is management thinking and is this the are the right people leading the ship i think they're aging the

Speaker 1company is aging i mean there is a deep talent bench uh perhaps in the middle level but the senior uh management team is perhaps aging you know there are some retirements they they i think there were hopes that this donkey kong bonanza game that came out last year was going to be a huge success it does look like mario in in some ways it just was perhaps a bit peculiar and the the the ip isn't as strong as mario and zelda and and these other poke like pokemon as well they just aren't isn't as strong it wasn't as strong so it didn't catch people's attention um too peculiar over a game so i think they they may be miscalculated there um that said it doesn't take much all they need to do is create another super mario odyssey with different levels and their their games are top-notch i mean have been so good that they've it's almost been unbelievably good so they don't even have to reach those levels just make some new content and and uh reach 8 out of 10 instead of 10 or 10. so i i'm not worried i think this is the console you buy as a family so i have a son i mean this is to me obvious the obvious choice uh so there isn't and and i'm very pleased with you know with the experience of the console um i don't know if there's anything that you want to add to that um so i i don't think there's too much to be worried about uh perhaps on the margin from console to console there is this issue of roblox i think taking market share and young people they prefer to play with their friends minecraft and roblox you know in particular but also outside the us people are perhaps a little bit less into such games and and i think nintendo still still rules supreme when it comes to like family and um you know i don't think there's too much to be worried about uh perhaps on the margin from console to console there is this issue of roblox i think taking market share and young people they prefer to play with their friends minecraft and roblox in particular but also outside the us people are perhaps a little bit less into such games and and i think nintendo still still rules supreme when it comes to like family and i think nintendo still still rules supreme when it comes to like family

Speaker 2consoles now i want to ask about another factor that's weighing on japan and that's the war uh with iran energy prices uh spiking have have hurt asia in particular because of the lack of production in the region it depends on whether you include the middle east within asia but still east asia um not self-sustaining in its energy production uh by and large relying on drawing down these reserves of crude oil as well as refined products and you can pretty much draw a line on the day that the war started and that is when japan stalled out up to that point japan had been outperforming the u.s um and was one of the would have been in our list at the beginning with with south korea and taiwan as examples of a market of of asian markets that were really leading the world and since then it hasn't and so i wonder about uh the the bid in japan coming back at all if we were to see um an end to this conflict and and what's your view on the ground of the effect of the conflict not just in japan but across asia

Speaker 1that's a difficult question i find it interesting that you say that i've always felt that the japanese market is it's really benefiting from a weak japanese yen and that's really the direct impact i think of course there's also the practical issue of of uh of prices increasing you know imported lng prices and so on um But the markets in Southeast Asia, Philippines, has been hurt immensely. I mean, they're shutting down their cities because they don't have enough energy supply. So this is a very serious issue, and also for the currency, because it just destroys the terms of trade. So to me, this is perhaps a solvable problem. I do think that they've hurt in terms of their performance. Stock prices have declined quite significantly, and that's also been in sync with this crisis for me. I'm thinking about, in particular, the Philippines and Indonesia, which are more of these frontier or emerging markets type of economies.

Speaker 2So you're saying the true frontier markets in Asia is really where that energy story is happening. And Japan? You could say has maybe been, if we were expecting rate cuts here in the US, and perhaps just basically that the idea that rates are going to have to continue to rise, right, to fight potential inflation. So you see it more as a rate story than an energy story. It's an inflation story, rather than demand destruction or the economy, the industrial economy being hurt by higher prices.

Speaker 1I mean, I'm a bottom-up stock. I'm a bottom-up figure. So this is a little bit beyond my pay grade. But yes, typically, that's what moves the currency. And that's what the stock market really cares about as well. Rate differentials, the currency, it's not necessarily bad for the market if the currency weakens. But of course, higher energy costs will be negative for some companies like utilities.

Speaker 2Let's talk about the laggards, though. I mean, India, China, up until... The AI trade took off, seen as the de facto leaders in the region, the two markets that you had to be in. If you were talking about investing in Asia, those were pretty much what people meant, especially with Japan having been in the doldrums for so long. South Korea, basically in the same boat, at an even bigger discount. And then the other markets, while there are pockets of excitement, are just so small in comparison. And for Western money to put anything to work, it was China. It was India. I ran the numbers last night. They're the two worst performing major indexes in the world. And certainly, there's idiosyncrasies with China's setbacks. India seems much more related to trade tensions with the US, tariffs, and the war. I'm interested in what you think of the situation in those markets that have really turned down in the past. In the past year, China obviously has turned down for a longer period of time.

Speaker 1Yeah, so let's talk about insider buying, because I think that sets the scene very well. And insider buying is very strong still in Southeast Asia, like the Philippines, Thailand, Indonesia. Very strong. Now, we're starting to see a little bit more buying in India. Still expensive markets, but a little bit more than before. And China, over the past two years, there's been significant selling in the Asia markets. Like, insiders are selling en masse. I think China has been seriously hurt by these US tariffs. And also, we've had this massive, massive bust in the property markets. Residential new starts are down 70% plus since 2021. Of course, government has been doing this on purpose. They've strangled the supply of credits to private property developers. They've strangled the supply of credit to private property developers. They've also curtailed the supply of mortgages to individuals, causing property prices to decline a little bit. But most importantly, new construction has just come down. And I think you used to have millions of construction workers. I think they've probably moved on to something else. Like, China was driven by property. And I think that going away, on top of the US tariffs, it's going to hurt. I mean, I know that volumes are still going up in terms of export growth. But it just has to hurt. So that's how I explain the selling that we've seen in the Asia markets. And then in Hong Kong stocks, it's a little bit singing to a different tune because it's driven by foreign money. And back in 2023, people spoke about China being uninvestable. JP Morgan wrote this famous report saying that it was completely a dead market for foreign investors. There was a rebound in Hong Kong. There was a rebound, especially in the large caps up until maybe like a year ago. And since then, for some reason, I'm not sure why, but people have been selling, foreigners have been selling Chinese stocks. It could be due to the US tariffs, you know, April last year. I'm not completely sure. I also think that the government is shooting themselves in the foot through, like, you know, the story about these online brokers, for example. Perhaps that was well justified. But there's also talk about taxes, gaming taxes. We've seen crackdowns in the tuition sector, in the property sector. A whole bunch of tech platforms have seen the CEOs just kind of fired or just resigned. So I see people around me being disillusioned with Chinese equities. And I'm also personally a little bit disillusioned because these antitrust actions against trip.com or whatever. I'm also personally a little bit disillusioned because these antitrust actions against trip.com or whatever. I'm also personally a little bit disillusioned because these antitrust actions against trip.com or whatever. I'm also personally a little bit disillusioned because these antitrust actions against trip.com or whatever. I'm also personally a little bit disillusioned because these antitrust actions against trip.com or whatever. They come out of nowhere, and you can't really predict them.

Speaker 2So with China shooting itself in the foot, I think people are pretty well aware of what's happening in the property sector. There were a lot of stocks in the private education sector that were doing well, and they cracked down on that sector. The brokerage story is a newer one. And correct me if my understanding is wrong, but it sounds like mainland Chinese investors were perhaps investing in the offshore. And correct me if my understanding is wrong, but it sounds like mainland Chinese investors were perhaps investing in the offshore. Chinese stocks investing in Hong Kong listings and some of the offshore listings of Chinese companies. And that is what the crackdown was on. And so you saw the shares of the offshore China-related equities fall, and obviously that affected the onshore equities as well.

Speaker 1These companies have been operating in a gray zone for years. And I think Jim Chanos was on CNBC back in 2021, 2022, pointing this out, that they were operating. They were. They had Chinese customers. They were not responsible for the capital flights, but the fact that they were soliciting customers on the mainland through local influencers and local marketing teams, also even being based there, they, of course, have foreign licenses. I think Momo is based in Singapore. Maybe Tigers is based in Hong Kong. But still. I mean, they were really active on the mainland, so I can see why the crackdown occurred in that case. Comparatively, like the tuition sector crackdown came out of nowhere as far as I'm concerned. And this whole tech crackdown, I mean, Jack Ma being targeted for having some kind of speech, that's just nonsense. Like in 2020. They introduced new laws that pretty much said that if you're a private company, you need to have a communist party committee that works as a shadow board and has the authority, should have the authority to fire and hire the CEO of a company. And they've had these communist party committees in these larger tech companies for quite a long time. But I think in theory, any large Chinese company should have these communist party committees. So it just makes you question how independent are they and if a genius like Jack Ma can be fired, then who is off limits? And that, to me, is really problematic and nothing that we've seen over the past five years has really made me change my mind on that.

Speaker 2Definitely a reminder that we're dealing with a communist country at its core. You know, the tech sector started to get a lot of power. I mean, education. It seems like something that if you were in a state-controlled system, the idea that education would be controlled by the state seems like something that might be cracked down upon. I was an investor in some of the Chinese consumer lending companies. They recently had a crackdown on the rates, despite the fact that consumers in China were paying back their loans at rates that would make U.S. consumers look like deadbeats. But still, they said the rates were too high and were exploitative. And perhaps there's an idea that if anybody's going to be controlling credit to consumers, it's going to be the government and not these companies. We want to rein in this credit. And so, I mean, it does seem just like a solidification of power at the party level and a reminder to investors in the country and abroad that you're dealing with a communist country.

Speaker 1For sure. I mean, this has been a gradual shift with the party kind of reasserted control and it's hard to say where they will stop but if you read history there's been a similar instances in the past when the Soviet Union opened up for a number of years and then closed down again uh the only thing that we know for sure is the party wants to maintain absolute control so that's problematic for for private companies that have too much control every grounder Alibaba and so on um you know so as an investor for you to align yourself with them might not be a good idea I want to talk about other

Speaker 2companies operating in gray areas I know where you are listed or where you are located is one of the places that people cite as where chip smuggling might be taking place so I'm interested I know that this might not affect your investment thesis but I have somebody who's on the ground in Singapore so I have to ask what is happening in the region in terms of companies that are potentially proxies for Chinese interests and the chips being sold into Malaysia Singapore other countries in Southeast Asia um and um is there any concern that some of the the country the companies in the region are participating in this and might get caught up in crackdowns um as we're starting to see these crackdowns occur here

Speaker 1in the West a city like Singapore and also Hong Kong in the past it's always been like a middle man a communist China they traded through Hong Kong uh for all sorts of you know imports um smuggling and vehicles that was a big part of Hong Kong I'm not saying that happens in Singapore but the it is a a path for Chinese companies to reach overseas customers uh Singapore has a free internet uh it's an open economy and it's a rule of law country so it's attractive for that reason and there are plenty of Chinese companies that have come here to access the the Western consumer uh tick tock I mean White Dance has a huge office here uh and there's a hundreds maybe thousands of Chinese companies that have set up shop here you can certainly feel that there are a lot more Chinese since 2022 and that could be you know due to uh an attempt to to want to access foreign you know foreign customer foreign users in in the tech sector in particular now they've Chinese companies have also set up data centers in Thailand in Malaysia in particular foreign customers foreign users in in the tech sector in particular now like they've Chinese companies have also set up data centers in Thailand in Malaysia in particular in particular now like they've Chinese companies have also set up data centers in Thailand in Malaysia in particular in particular now like they've Chinese companies have also set up data centers in Thailand in Malaysia in particular in particular now like they've Chinese companies have also set up data centers in Thailand in Malaysia in particular in particular now like they've Chinese companies have also set up data centers in Thailand in Malaysia in particular in particular now like they've Chinese companies have also set up data centers in Thailand in particular and I think they're using them for in Thailand in particular and I think they're using them for in Thailand in particular and I think they're using them for to train their models to train their models to train their models they have access to the Western internets so they have access to the Western internets so they have access to the Western internets so that's probably why it's taking place that's probably why it's taking place that's probably why it's taking place uh but uh Beyond Tech I think Chinese uh but uh Beyond Tech I think Chinese uh but uh Beyond Tech I think Chinese companies are moving into Southeast Asia companies are moving into Southeast Asia companies are moving into Southeast Asia to get access to the Western consumer some to get access to the Western consumer some to get access to the Western consumer some of these countries have lower tariff of these countries have lower tariff rights than China does and so they're rights than China does and so they're rights than China does and so they're very nimble and they're trying to very nimble and they're trying to very nimble and they're trying to minimize their their tariffs the best minimize their their tariffs the best minimize their their tariffs the best they can they can they can and to some extent also change their and to some extent also change their and to some extent also change their reputation as you know not being a reputation as you know not being a reputation as you know not being a Chinese company more you become Lenovo Chinese company more you become Lenovo Chinese company more you become Lenovo you know people are buying Lenovo they you know people are buying Lenovo they you know people are buying Lenovo they don't they're not concerned about it don't they're not concerned about it don't they're not concerned about it being a Chinese company even though it being a Chinese company even though it

Speaker 2being a Chinese company even though it of course it is yeah and Lenovo has been of course it is yeah and Lenovo has been of course it is yeah and Lenovo has been one of the stocks that has has been one of the stocks that has has been one of the stocks that has has been benefiting from these AI tailwinds benefiting from these AI tailwinds benefiting from these AI tailwinds um but even before the the AI trade um but even before the the AI trade um but even before the the AI trade really took center stage there was a really took center stage there was a really took center stage there was a lot of talk about um lot of talk about um lot of talk about um friend shoring right and the moving of friend shoring right and the moving of friend shoring right and the moving of business to countries like Vietnam business to countries like Vietnam business to countries like Vietnam Thailand Malaysia Etc um and Thailand Malaysia Etc um and Thailand Malaysia Etc um and interestingly it seems like it's going interestingly it seems like it's going interestingly it seems like it's going both ways uh with Chinese companies both ways uh with Chinese companies both ways uh with Chinese companies moving some of their business there and moving some of their business there and moving some of their business there and um and U.S interests moving there too do um and U.S interests moving there too do um and U.S interests moving there too do you see Southeast Asia as a beneficiary you see Southeast Asia as a beneficiary you see Southeast Asia as a beneficiary from a two-way Street perspective of from a two-way Street perspective of from a two-way Street perspective of rising tensions between the U.S and rising tensions between the U.S and

Speaker 1rising tensions between the U.S and China it's a really good question and I China it's a really good question and I China it's a really good question and I don't have a clear answer to how the don't have a clear answer to how the don't have a clear answer to how the region is going to look like you know 20 region is going to look like you know 20 region is going to look like you know 20 years from now but we're in this in years from now but we're in this in years from now but we're in this in between period where a new Cold War is between period where a new Cold War is between period where a new Cold War is forming clearly and the forming clearly and the forming clearly and the the lines the new Iron Curtain or the the new Iron Curtain or the the new Iron Curtain or the bamboo curtain those lines haven't been bamboo curtain those lines haven't been bamboo curtain those lines haven't been drawn yet drawn yet drawn yet like during the last Cold War India for like during the last Cold War India for like during the last Cold War India for example it was kind of cut off from the example it was kind of cut off from the example it was kind of cut off from the rest of the world trading only with the rest of the world trading only with the rest of the world trading only with the Soviet Union more or less and then after Soviet Union more or less and then after Soviet Union more or less and then after the Soviet Union fell in 1991 India the Soviet Union fell in 1991 India the Soviet Union fell in 1991 India opened up and became more prosperous opened up and became more prosperous opened up and became more prosperous than than it was back in 1991 than than it was back in 1991 than than it was back in 1991 um so that is a I think a risk I'm not um so that is a I think a risk I'm not um so that is a I think a risk I'm not saying that China is Soviet Union but saying that China is Soviet Union but saying that China is Soviet Union but there is a risk that if you end up on there is a risk that if you end up on there is a risk that if you end up on the wrong side of a new Iron Curtain the wrong side of a new Iron Curtain the wrong side of a new Iron Curtain that could have an impact on on your that could have an impact on on your that could have an impact on on your economic prospects I think a lot of economic prospects I think a lot of economic prospects I think a lot of countries in Asia they got wealthy like countries in Asia they got wealthy like countries in Asia they got wealthy like East Asia got wealthy through trade with East Asia got wealthy through trade with East Asia got wealthy through trade with the US let's be honest I mean that's the US let's be honest I mean that's the US let's be honest I mean that's what happened with Japan South Korea what happened with Japan South Korea what happened with Japan South Korea Taiwan China as well so if a country Taiwan China as well so if a country Taiwan China as well so if a country loses access to the US for for whatever loses access to the US for for whatever loses access to the US for for whatever reason like Vietnam is in friendly terms reason like Vietnam is in friendly terms reason like Vietnam is in friendly terms with the US uh but with the US uh but with the US uh but if if you cut off from trade if if you cut off from trade if if you cut off from trade like Myanmar is right now there's a civil like Myanmar is right now there's a civil like Myanmar is right now there's a civil war in in Myanmar still war in in Myanmar still war in in Myanmar still Pakistan is also nearing like they're Pakistan is also nearing like they're Pakistan is also nearing like they're they're kind of in in a partnership with they're they're kind of in in a partnership with they're they're kind of in in a partnership with uh Russia Iran China uh Russia Iran China uh Russia Iran China um that will have an impact on trade and um that will have an impact on trade and um that will have an impact on trade and and and growth and and and growth and and and growth uh so so right now we're I think with uh so so right now we're I think with uh so so right now we're I think with this in between period countries like this in between period countries like this in between period countries like Indonesia they're trying to play both Indonesia they're trying to play both Indonesia they're trying to play both sides um Vietnam as well trying to play sides um Vietnam as well trying to play sides um Vietnam as well trying to play both sides both sides both sides and I can't tell you what's going to and I can't tell you what's going to and I can't tell you what's going to happen longer term all I know is that happen longer term all I know is that happen longer term all I know is that right now Singapore is quite pro US right now Singapore is quite pro US right now Singapore is quite pro US Philippines is also quite Pro the US Philippines is also quite Pro the US Philippines is also quite Pro the US whereas Malaysia Indonesia Thailand I whereas Malaysia Indonesia Thailand I whereas Malaysia Indonesia Thailand I feel like they're closer to to China in feel like they're closer to to China in feel like they're closer to to China in terms of trade politics you know like terms of trade politics you know like terms of trade politics you know like infrastructure buildouts and and infrastructure buildouts and and infrastructure buildouts and and longer-term payment infrastructure longer-term payment infrastructure longer-term payment infrastructure like uh I think this is going to have like uh I think this is going to have like uh I think this is going to have pretty broad ramifications just like I pretty broad ramifications just like I pretty broad ramifications just like I did in the last Cold War but to really did in the last Cold War but to really did in the last Cold War but to really understand what's going to happen I understand what's going to happen I maybe you need like a political analyst

Speaker 2maybe you need like a political analyst maybe you need like a political analyst okay all right well let's focus on what okay all right well let's focus on what okay all right well let's focus on what what is your your true expertise and what is your your true expertise and what is your your true expertise and that is bottom up stock picking in the that is bottom up stock picking in the that is bottom up stock picking in the region you said Korea is the place to region you said Korea is the place to region you said Korea is the place to be what are some of the most exciting be what are some of the most exciting be what are some of the most exciting opportunities that you see in Korea opportunities that you see in Korea

Speaker 1opportunities that you see in Korea right now yeah so Korea is is the one right now yeah so Korea is is the one right now yeah so Korea is is the one market that is it's it's it's cheap and market that is it's it's it's cheap and market that is it's it's it's cheap and it's also having all these tailwinds it's also having all these tailwinds it's also having all these tailwinds that are recent I you know I I talk that are recent I you know I I talk that are recent I you know I I talk about the like lower uh inheritance tax about the like lower uh inheritance tax about the like lower uh inheritance tax or other difference a change to the or other difference a change to the or other difference a change to the inheritance tax lower dividend tax uh inheritance tax lower dividend tax uh inheritance tax lower dividend tax uh also the English disclosures you can also the English disclosures you can also the English disclosures you can trade the stocks through Momo through trade the stocks through Momo through trade the stocks through Momo through contract brokers uh so that's the one contract brokers uh so that's the one contract brokers uh so that's the one markets but I feel like markets but I feel like markets but I feel like it has momentum there's interest there it has momentum there's interest there it has momentum there's interest there uh Southeast Asia is also super uh Southeast Asia is also super uh Southeast Asia is also super interesting we can talk about that interesting we can talk about that interesting we can talk about that later but there's no momentum there no later but there's no momentum there no later but there's no momentum there no interest and and no catalyst but um interest and and no catalyst but um interest and and no catalyst but um right now in Korea right now in Korea right now in Korea um I'm um I'm um I'm like I mentioned one of the stocks I only like I mentioned one of the stocks I only like I mentioned one of the stocks I only own one stock right now in Korea to be own one stock right now in Korea to be own one stock right now in Korea to be perfectly honest and it's it's called perfectly honest and it's it's called perfectly honest and it's it's called nice information service nice information service nice information service it's the dominant credit score provider it's the dominant credit score provider it's the dominant credit score provider they own something called a nice score they own something called a nice score they own something called a nice score and every time a bank and every time a bank and every time a bank extends a loan to a consumer they will extends a loan to a consumer they will extends a loan to a consumer they will ping them and and pay for the score ping them and and pay for the score customer you know something like a dollar customer you know something like a dollar customer you know something like a dollar or a bit less than a dollar or a bit less than a dollar or a bit less than a dollar and this is like a tall bridge like and this is like a tall bridge like and this is like a tall bridge like they're getting cash for every query they're getting cash for every query they're getting cash for every query and they don't have to do anything with and they don't have to do anything with and they don't have to do anything with it you know this this database and this it you know this this database and this it you know this this database and this information has already been built and information has already been built and information has already been built and and growth is is highly margin and growth is is highly margin and growth is is highly margin distributive so the margin is going up distributive so the margin is going up distributive so the margin is going up every year every year every year the p ratio is not nine ten the p ratio is not nine ten the p ratio is not nine ten I think the dividend yield maybe I I think the dividend yield maybe I I think the dividend yield maybe I forget what it is maybe five six forget what it is maybe five six forget what it is maybe five six percent percent percent but you have this combination of very but you have this combination of very but you have this combination of very stable growing earnings stable growing earnings stable growing earnings maybe it's double digits like low double maybe it's double digits like low double maybe it's double digits like low double digit earnings growth uh at a single digit earnings growth uh at a single digit earnings growth uh at a single digit is multiple digit is multiple digit is multiple I do think like they're there I think I do think like they're there I think I do think like they're there I think yeah yeah yeah catalogation is just fine there is a catalogation is just fine there is a catalogation is just fine there is a somewhat of a complex corporate structure somewhat of a complex corporate structure somewhat of a complex corporate structure uh but uh but uh but um yeah this is the story I think um yeah this is the story I think um yeah this is the story I think if you compare this with uh FICO which if you compare this with uh FICO which if you compare this with uh FICO which has raised prices a lot has raised prices a lot has raised prices a lot um this to me like I don't quite um this to me like I don't quite um this to me like I don't quite understand why this should trade at a understand why this should trade at a understand why this should trade at a third of the price third of the price third of the price that goes for a lot of stocks but in that goes for a lot of stocks but in that goes for a lot of stocks but in this case uh I mean you can you can go this case uh I mean you can you can go this case uh I mean you can you can go through the numbers it's as well through the numbers it's as well through the numbers it's as well I think you'll end up with the IRR I think you'll end up with the IRR I think you'll end up with the IRR estimates that are that are pretty high estimates that are that are pretty high estimates that are that are pretty high at least my IRR estimates are pretty at least my IRR estimates are pretty at least my IRR estimates are pretty high on that particular store so with

Speaker 2high on that particular store so with high on that particular store so with you being so bullish on Korea to only you being so bullish on Korea to only you being so bullish on Korea to only own one stock right now is surprising own one stock right now is surprising own one stock right now is surprising that means that either you're still that means that either you're still that means that either you're still doing your work or there are other doing your work or there are other doing your work or there are other opportunities that have you even more opportunities that have you even more opportunities that have you even more excited in other countries

Speaker 1um which one is it I'm very cautious I used to own FN guide which is an index provider it's almost like the MSCI of of South Korea and that stock has tripled in in just a few months and I sold it in March prematurely by the way but it's just too extended in terms of the the multiple I bought it at maybe 11 times p now it's closest to 30 times uh high quality business also it kind of really hot in a multi-company uh but to be perfectly honest the it is it is so easy to find ideas in Asia I today I wrote about Japanese sauce companies software companies they trade at such low levels as well it's unbelievable like two times even to sales three times that's the average they're all growing 20 plus long-term margin Guidance of you know 20 30 percent um so that's really exciting to me I feel like you know that part of Japan the domestic yen earning companies especially growth companies um Southeast Asia I own stocks in Thailand I've been buying stocks in Thailand um single GDP ratios uh for example I wrote about a company called to a paint which is a paint company in in Thailand that company trades with I think p ratio of eight uh they're growing I mean the market is is a bit weak the housing market right now but longer term it's it's it's an interesting story um so yeah I mean I I'm finding ideas that are almost equally attractive in in smoke of Korea I haven't bought too much yet but this is you know this is the place to do research for sure um and then Southeast Asia um infrastructure stocks uh I own uh stocks in I own Fairfax India which owns an airport in in Bangalore I own uh an air traffic controller in Cambodia Trace like 11 times p eight percent yield so this is this is pretty much where CPC opportunities right

Speaker 2now so Southeast Asia and Korea so India is interesting because you have again these these conglomerate holding companies where you're getting exposure to a lot of different businesses oftentimes at a huge discount to the net asset value um and Sebi is undergoing some reforms as well it seems like the trend of trying to close some of these valuation gaps get higher returns on equity is not just a Japanese story not just a Korean story but it's happening all over the world all across the region um is it happening in Southeast Asia in the same way it is in India

Speaker 1as as well as these other countries Singapore has a uh a reform agenda but so far it's been mostly um trying to allocate money to certain um to the small cap markets it's pushed up price a little bit uh and um they've I think they they're trying to um encourage companies to to allocate capital better uh whether that's long lasting or not we'll just have to wait and see I think Malaysia has its own value up program uh also seems to it seems to be a little bit thin on details so I'm not seeing as much and in fact Indonesia is gone the other way like very anti-market type of policies um so uh for for me like I'm seeing um as cheap stocks in Thailand and the Philippines whereas Indonesia has just become this kind of basket case uh and Malaysia is kind of a mid a mid-teens P multiple Singapore as well um so if you care about value as I do uh yeah like I said Thailand Philippines with the caveat

Speaker 2that this is not investment advice what percentage of of assets do you think investors should be be putting towards opportunities in Asia um when you look at the opportunity set in in the world

Speaker 1well I'm uh I'm a European and uh you know I have the flexibility to invest wherever I want and um I have the vast majority of my wealth in in Asia and the only reason for that is is it's a huge investor like the opportunity to set is massive and from a stock picker's point of view um if you want to minimize risk you should prop and you if you are long term you're willing to invest on a 10-year basis you should own stocks that are cheap like that to me makes a lot of sense uh so if I'm forced to choose between Sherwin Williams versus tour paint in Thailand one is 28 times P one is eight times P it seems more um prudent to go with the ladder despite the fact that it is an emerging market like if they were at a similar multiple you would probably want to go with the country with a better corporate governance because countries like the US Western Europe Australia they tend to do better over the long run emerging market do better after crises or when they're really really cheap like they are right now so when you ask about like the the percentage and I think you know if I were not so fully focused on on Asian equities I think I would probably have you know a small percentage of of of assets in in Europe certain countries like Denmark maybe uh where I find value some in Latin America and actually quite a lot in in Southeast Asia and Korea just because Cape ratios like they're at a different different level I remember I mean I came to Asia 2009 and back then US stocks were really unpopular this was from Rogoff and Reinhardt they issued the book they said you know over 90 percent public debt to DGP ratio it means disaster they're going to you know lead to a long-term crisis and and people were so afraid of US stocks and here we are 15 years onwards or 16 years onwards we've gone like the complete opposites now the bricks company like the big story is the emerging market stories they used to trade at like 30 40 times P for consumer stocks now they're below 10 almost across the board um so I don't know when the cycle will turn but if you're long term you know I would definitely look a little bit further and take a significant chunk away from from from the US unless you find like you know really good stories like value stocks it it seems like um you know you've had this amazing amazing boom but it's not going to last forever um and if you want to be prudent start looking at you know get an interaction brokers account that's what I would do and start looking at Korean equities perhaps or or you know Southeast Asian equities you have to get a different brokerage account but uh if you're prudent and long-term

Speaker 2and and care about value this is the way to do it all right Michael well I think that is a great place to leave it people can find you on X as well as on substack what are the handles there uh my handle on Twitter is Mike fritzell

Speaker 1f-r-i-t-z-e-l-l or z-e-l-l and I'm actually not writing on subsequent anymore my newsletter is actually off substack on a platform called ghost but you can find it on Asian century stocks.com so that's the website or just find me on Twitter send me a message all right wonderful thank you

Speaker 2Michael

Speaker 1Thank you so much.

Podcast Summary

Key Points:

Michael Fritzell argues that South Korea's memory chip sector, particularly SK Hynix and Samsung Electronics, may be in a bubble due to unrealistic profit estimates and coming Chinese supply.
Taiwan's TSMC is viewed as a more sustainable bull market because it has not raised prices as much and remains a critical bottleneck in chip production.
Retail speculation in Taiwan and South Korea is reaching extreme levels, with stock prices reacting violently to minor news and technical analysis driving much of the trading activity.
Japan's bull market has been driven by a weak yen, corporate governance reforms, and improved capital allocation, but it may be nearing its peak.
Korea is emerging as the next major opportunity for activism and value investing, with reforms to inheritance tax, dividend tax, and director liability improving shareholder rights.
China's market has been hurt by property market busts, US tariffs, and unpredictable regulatory crackdowns, leading to widespread disillusionment among foreign and domestic investors.
Southeast Asia, particularly Thailand and the Philippines, offers cheap valuation opportunities, while Indonesia has become less attractive due to anti-market policies.
Nintendo faces short-term headwinds from rising memory prices and a thin game release slate, but its long-term prospects remain strong with upcoming titles and a successful Switch 2 console.

Summary:

Fritzell notes extreme retail speculation in Taiwan and South Korea, with stock prices reacting violently to minor news and technical analysis dominating trading activity. Japan's bull market, driven by a weak yen and corporate governance reforms, may be nearing its peak, leading smart money to shift toward Korean small caps. Korea's recent reforms to inheritance tax, dividend tax, and director liability are creating a wave of activism and value opportunities.

China remains challenged by property market busts, US tariffs, and unpredictable regulatory crackdowns. Fritzell favors Southeast Asia, particularly Thailand and the Philippines, for deep value plays, while Indonesia has become less attractive. He also discusses Nintendo's short-term headwinds from rising memory prices and a thin game slate, but remains optimistic about its long-term prospects.

FAQs

Why does the guest consider South Korea's memory chip sector a bubble?›

He points to extremely high forward profit estimates for SK Hynix and Samsung Electronics, which would make them the most profitable companies in the world despite producing commodities. He also expects new supply from increasingly profitable Chinese competitors from 2027 onwards.

Why does the guest prefer TSMC over Korean memory chip makers?›

TSMC has not raised prices as much and remains a major bottleneck because it has not increased production dramatically, making its bull market more sustainable. In contrast, commodity DRAM is a standardized product with daily pricing and several competitors, making pricing discipline harder to maintain.

What signs of retail speculation is the guest seeing in Taiwan?›

Stocks move violently just on being mentioned as potential data center beneficiaries, even when the related business is tiny. He also sees many new social media accounts focused on technical analysis and K-lines, and average P/E ratios near 30 in Taiwan.

Why is the guest more interested in Korean small caps than large caps?›

Korean small caps have sold off recently and trade at single-digit P/E ratios despite being solid, growing companies. He also sees improving governance, tax reforms, and a coming wave of activism as major tailwinds.

What governance reforms in Korea does the guest highlight?›

Korea has reduced inheritance tax and dividend tax burdens and, since 2025, directors can be held personally liable for related-party transactions that harm minority shareholders. These changes are reducing the persistent discount on Korean equities.

What is the guest's view on Nintendo?›

He sees it facing real headwinds from higher memory prices and a thin 2026 game slate, but believes the stock is down nearly 50% and could recover strongly in 2027 with a Zelda movie and a potential 3D Mario game.

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