One month into the Middle East conflict, South Korean funds are pouring into A-shares for risk avoidance. What are the key purchases?

Why Are A-shares a Safe Haven for Korean Funds Amid Middle East Conflicts?

Cailian Press, April 7th (Reporter Li Di) Recently, the Middle East conflict has continued to escalate, and A-shares have been operating under its influence for a full month since March 2nd. Over this month, although A-shares maintained a volatile trend, they still demonstrated strong resilience. Meanwhile, markets such as Japan and South Korea experienced significant fluctuations. Against this backdrop, many Korean investors have flocked into A-shares to seek safety.

SEI Bro data shows that as of April 2nd, Korean investors had net purchased Sany Heavy Industry worth $6.6118 million over the past month, making it the top A-share target in their holdings. Broad-based ETFs are also favored; the GuoQing Shanghai Composite ETF received net inflows of $2.1627 million over the past month, with no sales during this period. Additionally, Huabao CSI Bank ETF, with its defensive qualities, also became a preferred safe haven, net buying $915k from Korean investors in the past month.

While increasing holdings in safe assets, Korean funds also bought into multiple tech sector targets. Among them, Huaxia Shanghai Stock Science and Technology Innovation Board 50 ETF and Huaxia CSI 5G Communication Theme ETF received net inflows of $453.3k and $3.4112 million, respectively. Moreover, leading companies in optical modules, semiconductors, and PCBs such as Zhongji Xuchuang, Changguang Huaxin, and Shennan Circuit also saw increased purchases. Industry insiders emphasize that China’s tech industry chain has strong autonomous and controllable attributes, with stable supply chains. The overall valuation of the sector remains reasonable, and some niche leaders within the industry chain are not available in the Korean market, giving them a certain scarcity premium, which makes them attractive to Korean investors.

Korean Investors Flock to A-shares for Safety, Broad-based ETFs and Bank ETFs See Net Purchases

SEI Bro data shows that as of April 2nd, the A-share target with the largest net purchase by Korean investors over the past month was Sany Heavy Industry, with a net buy of $6.6118 million.

In addition, broad-based ETFs have also become popular among Korean investors. Over the past month, net purchases of the GuoQing Shanghai Stock Composite ETF by Korean investors reached $2.1627 million.

Notably, even amid increased volatility in the A-share market, Korean investors’ sales of this ETF over the past month remained zero, reflecting their strong confidence and long-term allocation intent toward the Shanghai Composite ETF.

Industry analysts point out that Korean investors’ firm holding of the Shanghai Stock Composite ETF is mainly due to several reasons:

First, A-shares are relatively less affected by external geopolitical tensions and have clear safe-haven value compared to the increasingly volatile Korean market; second, recent fluctuations in the Korean won exchange rate have increased, while the RMB has shown an appreciation trend, with expectations of RMB appreciation further boosting the attractiveness of RMB assets; third, A-shares’ valuation levels are still within a reasonable range, offering higher investment value compared to markets like the US and Korea.

Besides the GuoQing Shanghai Stock Composite ETF, Korean investors have recently also shown net buying interest in Huabao CSI Bank ETF, with net inflows of $915k over the past month.

Industry insiders note that Chinese bank assets are profitably stable, with steady dividend levels, making bank ETFs inherently low-volatility dividend assets with strong defensive qualities, thus attracting Korean safe-haven funds.

Beyond ETF products, Korean investors have also bought into multiple state-owned enterprise infrastructure and energy power targets. Heavy assets companies such as China Power Construction, China National Chemical, and Dongfang Electric received net inflows of $2.1512 million, $700,000, and $438.7k, respectively, from Korean investors over the past month. Energy companies like Ganfeng Lithium and Longi Green Energy also gained favor, with net inflows of $2.3473 million and $764.1k.

Tech Sector Also Gains, 5G ETF and Semiconductor Stocks Favored

In addition to bank ETFs and infrastructure companies as safe assets, Korean investors have increased holdings in tech stocks or ETFs.

Among them, Huaxia Shanghai Stock Science and Technology Innovation Board 50 ETF received net inflows of $453.3k from Korean investors over the past month. The SciTech 50 Index, as the core broad-based index of the STAR Market, covers sectors such as semiconductors, artificial intelligence, biomedicine, and high-end manufacturing, allowing Korean investors to easily allocate to Chinese tech stocks. The index’s valuation remains reasonable, making it attractive to Korean investors.

Besides the SciTech 50 ETF, several other targeted tech segments have also seen recent increased purchases by Korean investors. The net buy of Huaxia CSI 5G Communication Theme ETF over the past month was $3.4112 million.

A senior researcher from a major public fund told reporters that the 5G sector is currently experiencing key investment opportunities. The continuous iteration of AI large models and computing networks significantly boosts demand for high-speed communication, driving the prosperity of the 5G industry chain upstream and downstream, with industry growth momentum clearly evident.

It is also noteworthy that some high-quality targets within China’s 5G industry chain lack similar counterparts in the Korean market, giving them a certain scarcity advantage that attracts Korean investors.

Additionally, companies like Zhongji Xuchuang, Changguang Huaxin, and Shennan Circuit, leaders in optical modules, semiconductors, and PCBs, respectively, also saw net purchases from Korean investors over the past month.

Industry analysts suggest that amid ongoing geopolitical conflicts, China’s tech industry chain has strong autonomous and controllable features, with stable supply chains. China’s energy supply security is also significantly better than Korea’s, making it highly attractive to Korean investors. Although Chinese tech stocks have already experienced some gains, their overall valuation remains reasonable. As corporate profits continue to grow and valuations gradually digest, the safety margin of these assets will further improve.

(Reporter Li Di, Cailian Press)