Is the wave of K-pop in the stock market running out of steam?

(BFM Bourse) – Behind the growing enthusiasm for Korean popular culture, music companies are recording contrasting stock market performances this year. An ETF dedicated to K-pop and launched in September, for its part, shows performance without much relief.

It’s no secret that K-pop, or Korean popular culture, is booming. Boy bands and girl bands BTS and Blackpink are positioned at the head of the gondola in the major record stores. Alongside the successful South Korean series Play octopus boosted Netflix subscriptions last year with estimated revenue of around $900 million for a production cost of just $21 million.

According to figures from the Korean Ministry of Trade, cited by two University of Melbourne academics in a study published in August 2022, revenue from K-pop exports increased sixfold between 2017 and 2021, reaching 230 billion won, or 170 million won. Euro. BTS would have contributed $4.6 billion to South Korea’s gross domestic product in 2019, or 0.3% of the total, still according to this study. So much so that, as these scholars point out, K-pop is sometimes described as Korea’s new “Samsung.”

The most important brands are listed

The financial markets are not kept away from the phenomenon, far from it. Thus, the Hybe brand that produces BTS was introduced two years ago with great fanfare on the Seoul Stock Exchange. YG Entertainment, which originates from Blackpink, whose four singers are the muses of big names in haute couture and luxury, has been listed since 2011. JYP Entertainment, which produces the famous girl group Twice, had introduced itself to the stock market in 2001, a year after SM Entertainment (which includes the boy band Exo in its stable), pioneered these companies in the market.

For Western investors looking to convert this growing popularity into investment opportunities, an index fund (ETF, Exchange Traded Funds) was even launched last September, designed by CT Investments, a South Korean asset manager. This ETF simply called “KPOP ETF” is listed in New York and gathers around thirty stocks related to South Korean popular culture.

The three most important weightings are SMV, Hybe and JYP. Also including YG Entertainment, the four major K-pop labels make up around 35% of the portfolio. There is also Kakao, a web platform that offers services such as Kakaotalk, a kind of Korean WhatsApp, AfreecaTv, a TV platform with a strong appetite for e-sports, or Studio Dragon, producer of Korean TV series and oscar-winning films Parasite. This ETF currently has $2.7 million in assets under management.

Mixed fortunes

Still, the performance of this ETF is lacking. Since its launch in September, the price has dropped by 5%. During the same period, the Kospi Composite, the main index on the Seoul Stock Exchange, lost 2.4%. While Morningstar, known for its fund ratings, has created a page dedicated to this ETF on its website, it is not (yet) covered by its analysts, which may weigh heavily on its appeal.

It must also be said that the companies in the portfolio experience varying fortunes on the stock market. Hype has thus fallen by more than 50% since the beginning of the year, punished in the spring by the decision of the singers from BTS to put the group on hold. A few months later, in October, the record company confirmed that all members of the group would perform their military service, which is still mandatory in Korea, pushing any hope of a reunion of the group to 2025. And continues to weigh on the act.

YG, meanwhile, has lost 18.7% since January, falling in line with the Seoul Kospi (-20.7%), which is suffering particularly from the economic difficulties in China, on which Korean foreign trade is heavily dependent. Conversely, SM Entertainment won 5.1% and JYP Entertainment 28.6%. As pointed out KoreaJoongAng Dailythese companies posted solid results in the third quarter of 2022.

“Inflection Point”

Returning to the KPOP ETF, CT Investments CEO Jangwon Lee assured CNBC in November that despite a poor start for the index fund, better days were ahead. The leader believed that the craze for Korean popular culture was “only in its infancy”. This is because “we are witnessing a turning point in K-pop and ‘K-content’ which is gradually becoming mainstream in the world, since it was more of a subculture in the past,” he argued.

According to Jangwon Lee, the companies included in the ETF’s portfolio will thrive in the long term with the reopening of borders and the lifting of health restrictions in Korea or Japan. Due to the high level of engagement of K-pop lovers on social networks, the manager believes that there may be a high level of conversion of these fans into shareholders of companies in the sector. And therefore a large pool of investors in the KPOP ETF.

Todd Rosenbluth, director of research at the financial analysis company VettaFi, is skeptical about the potential interest of Westerners in such a fund. “While we have narrowly focused US-listed ETFs related to cannabis, cyber security, climate change, video games and even space exploration, there is nothing like this” with the KPOP ETF, he explained to Financial Times in October. This financial intermediary also doubts the attractiveness of the ETF compared to the habits of foreign investors. “When investors think about exposure to South Korean stocks, they want to [généralement] take advantage of the advantages of multinational companies based there, such as Samsung Electronics or Hyundai Motor”, he explains.

It therefore remains to be seen whether K-pop will be able to play the right role with the Western financial community, so that its knowledge of the stock market also becomes more global.

Julien Marion – ©2022 BFM Bourse

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