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Korean Hedge Fund Buys Tech Stocks Betting Worst Over for Market

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(Bloomberg) -- South Korean hedge fund J&J Investments Co. is increasing its position in Naver Corp. and other tech shares on expectations the nation’s equity market will stage a recovery from a brutal first half.

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Choi Kwangwook, the chief investment officer at the Seoul-based firm, which manages 3.5 trillion won ($2.7 billion), said the rally will begin this quarter now that fears of a global economic recession and accelerating inflation have been priced in. The Kospi lost more than a fifth of its value during the first half, making it one of Asia’s worst-performing stock benchmarks.

“Stock markets have priced in extreme fears and have reached oversold territory,” Choi said on Tuesday. “From now, there’s no need to worry.”

His optimism is based on two assumptions: that stocks have factored in lower corporate earnings, and that higher production costs are starting to correct.

J&J Investments suffered losses in line with the Kospi’s slump during the first half, Choi said. The fund has been overweight domestic technology and internet stocks that were hit hard as foreign funds pulled money out.

During that period, shares of Samsung Electronics Co. lost more than a quarter of their value as net selling by foreigners exceeded $6 billion. SK Hynix Inc. sank 31%, outpacing the Kospi’s 22% loss.

The fund’s heavy exposure to South Korean tech stocks is now starting to pay off, Choi said. Both Samsung and SK Hynix gained at least 8% so far this month, while the benchmark stock index added more than 3%.

Internet giant Naver is attractive because of its cheap valuations, according to Choi. The stock, which has climbed more than 4% since plunging 37% in the first half, has a price-to-earnings ratio of 26, hovering near the lowest level since late 2021.

“With the current valuation, Naver’s price has lost all the premiums as a platform company,” Choi said. “They will be an important momentum for improving our profitability during the second half.”

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