Lee Sun-yup, CEO of AFW Partners, Presents Second Half Investment Strategy: Easing Semiconductor Concentration and Diversifying Portfolios

In the past, the main goal was to demonstrate how advanced robots were, but now there is growing interest in the role of component suppliers and how robots can be used in real life. Lee Sun-yup, CEO, explained this change, stating, "Firstly, this time, the focus was less on how much robots have improved, and more on the fact that there were far more component manufacturers than before." The importance of the component ecosystem is highlighted by the fact that nearly half of all participating companies were robot component manufacturers.

With substantial cost savings in actuators and reducers, which constitute a large portion of robot manufacturing costs, Chinese companies can produce a diverse range of robots from low-cost to high-end models. Lee Sun-yup stated, "The scariest thing is that component prices are too cheap. Regardless of whether we think China is good or bad, what comes to mind when we think of China is that they are very cheap." He emphasized the impact of China's low component costs on the market. This price competitiveness is a major driving force accelerating the growth of China's robot industry.

In the past, emphasis was placed on showcasing a robot's physical abilities or elaborate movements, but now more attention is given to how efficiently robots can perform useful tasks in real-life or industrial settings. Lee Sun-yup clarified this change, explaining, "Up until last year, they were doing somersaults. Nowadays, showing how they can work is what's different." This emphasis on practicality is manifested in forms such as replacing robot legs with wheels to enhance stability and maximize cost-efficiency, significantly expanding the commercial applicability of robots.

The Chinese government is implementing large-scale, state-led support policies to foster the robot industry. A key aspect of this policy is the government directly purchasing initial robot production volumes to secure sales channels for companies. This helps companies reduce market entry uncertainty and stably increase production during early stages. Lee Sun-yup stated, "It moved based on the state. Recently, the state has also set up many measures, like 'if it doesn't work out, I'll buy it all,'" emphasizing the government's proactive role. Furthermore, the government provides subsidies and support measures to secure data essential for robot learning, laying the groundwork for the advancement of robot AI.

This is essential for advancing robot AI and enabling them to adapt flexibly to various situations.

It is crucial for robots to accurately perceive their surroundings, efficiently manage energy consumption, and deeply understand physical laws. For instance, errors can occur when recognizing or picking up objects like plastic bags, which constantly change shape. Lee Sun-yup pointed out, "Plastic bags can't be learned, and since they keep looking like this or that, there are times when they make mistakes picking up objects." This indicates a lack of application ability in situations beyond their learned specific range, suggesting that further technological development is needed for robots to operate flexibly in diverse real-world environments.

There are many obstacles to deploying humanoid robots in daily life, especially in homes. Their ability to understand and control complex human emotions is still immature, and it is difficult for robots to completely replace humans in daily situations where unpredictable exceptions frequently occur. Lee Sun-yup explained, "There are many times when you don't know what actions they will take. So for robots to control this, to control emotions, it's not easy." He pointed out the difficulty for robots to perform complex social roles like elder care or managing dementia patients' emotions. The analysis suggests that there are still many technical and social hurdles for humanoids to fully replace humans in areas with numerous variables, such as childcare.

As humanoid robot technology rapidly advances in China, expectations are growing for a shift in the role of robots in future society. Particularly with the development of skin and sensor technologies, sophisticated humanoid robots are emerging that are difficult to distinguish from humans. Lee Sun-yup stated, "We actually saw them. They're still a bit awkward, but they're real. Very real. So it's not just the humanoid we imagine; they have actual skin, and sensors respond sensitively," noting that these technological advancements enhance the realism of robots. The development of such robots, coupled with declining marriage rates, is also raising the possibility of a new social perception where robots are considered companions.

The advancement of humanoid robots is expected to create enormous demand in the high-performance memory market. Robots need to process vast amounts of data for learning and memory of actions, requiring an astronomical amount of memory in this process. Lee Sun-yup emphasized the importance of memory, explaining, "In fact, memory is even more astronomical. Why? Because it has to view everything mathematically for motion, and it needs to learn and remember that for it to perform different actions." This aligns with Elon Musk's reasons for investing in Megapack. As robot data collection in industrial settings becomes widespread from the second half of the year, this demand for high-performance memory is expected to become more visible, revealing new momentum in the relevant market.

Investors anticipated more active shareholder returns from the two major semiconductor companies, but these expectations were not fully met due to practical constraints, leading to disappointment reflected in stock prices. Lee Sun-yup stated, "Still, the expectations and concerns, or rather disappointment, regarding shareholder returns were reflected," pointing to market disillusionment. Regulatory restrictions like the separation of banking and commerce also acted as obstacles to implementing shareholder return policies, limiting companies' shareholder-friendly measures, which negatively impacted stock prices.

Lee Sun-yup explained the nature of US-based capital, saying, "Generally, US-based capital is long-term capital. It's capital that enters Korea, seeing the country positively and intending to stay consistently." Funds originating from tax havens also tended to be short-term and reacted sensitively to market volatility. These differences in the nature of foreign capital significantly influenced the trends in the domestic stock market in July.

A prime brokerage survey of London investment banks revealed that leveraged investments were heavily concentrated in major semiconductor companies, including SK Hynix and TSMC. Lee Sun-yup explained, "At that time, hedge fund leverage was highly concentrated, and where was it concentrated? It was heavily focused on semiconductor companies, including Hynix and TSMC," indicating that this concentration was perceived as a potential market risk. The Bank of England warned that such concentrated leveraged investments could transmit risks to the entire financial system if the AI semiconductor market experienced a sharp correction.

This rapid leverage liquidation caused a significant short-term shock to the market, acting as a factor that increased stock price volatility.

The Korean stock market is highly dependent on the semiconductor industry, with two major semiconductor companies accounting for nearly half of the entire market. This high dependence inevitably brings market volatility. Lee Sun-yup explained, "Whether there is leverage or not, these two companies still account for half the market. We are a country with a high proportion of semiconductor companies, so we should probably carry a certain level of volatility as a constant." He emphasized that the ups and downs of the semiconductor industry significantly impact the entire domestic market. Because there is a lack of relative buffer companies that can mitigate the overall market shock outside of semiconductors, Korean market investors must accept semiconductor-related volatility as fate and formulate investment strategies accordingly.

Currently, there are many other large-cap stocks outside of semiconductors whose performance is improving but whose stock prices have not yet fully reflected this. Lee Sun-yup said, "From the perspective of institutional investors, playing the market by only buying this would consume too much energy. While building a balanced portfolio, no one currently holds other large-cap stocks," suggesting that these stocks could be attractive alternatives for institutional investors. Institutions are expected to diversify their portfolios and broaden their interest to various large-cap stocks with anticipated performance improvements to maximize their operating returns.

Lee Sun-yup advised, "So, we also need to diversify our portfolio more. This is especially true for those holding cash right now. I don't think it's wise to move too aggressively if you are looking for new entry points," emphasizing a cautious approach. He explained that it is advisable to spread risk and pursue stable returns by paying attention to other large-cap stocks that are currently undervalued relative to their performance.

Since semiconductor stocks currently face resistance levels that could slow their upward momentum, investors need a strategy to diversify their portfolios, moving away from a sole focus on semiconductors. Lee Sun-yup emphasized, "So, I'm not saying sell semiconductors or don't invest in them. What I'm saying is that from now on, we should be building a portfolio." He asserted the importance of building a balanced portfolio rather than simply selling semiconductor stocks. It is crucial to manage portfolios in line with overall market trends rather than trying to beat the market. He advised that individual investors, especially those with less investment experience, should respond in a way that allows them to find easy and certain profit opportunities. This means diversifying investments across various industries and stocks to reduce risk and pursue stable returns.

Investment ideas can be found by observing changes in daily life. A notable trend is the significant increase in cosmetics purchases due to the surge in foreign tourists visiting Korea. Lee Sun-yup mentioned, "Don't many foreign friends come to Korea? Do you know what they buy most when they come here? Olive Young products." He used Olive Young's high foreign sales as an example. Demand for K-beauty products is also expanding in overseas markets like the US, indicating significant growth potential for related companies. Therefore, investors should closely observe their daily lives and find new investment opportunities in these real-life consumption trends and industry changes.