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How Squid Game is generating interest in Korean entertainment stocks

05102021_Squid Games

How Squid Game is generating interest in Korean entertainment stocks

If you needed any further proof that narratives have been a significant driver of individual stock returns in the current market environment, you need look no further than the impact the recent success of Squid Game has had on the share prices of media companies in South Korea.

For those not familiar with Squid Game, it is a survival drama television series broadcast by Netflix (disclaimer – the show may not be for the fainthearted). No doubt the show is benefitting in some regions where people are avoiding outdoor settings, but its popularity is undeniable, with the series on track to become its most popular show ever.

Unsurprisingly, its success has spurred significant interest in Korean entertainment stocks associated with the series. Two companies that are worth highlighting are Bucket Studio Co (066410 KS) – which holds a stake in the agency representing its lead actor Lee Jung-Jae – has seen its share price spike up over 110 per cent in the month of September, while Showbox Corp (086980 KS) – a company with an indirect association with the show’s production company – has gone up over 50 per cent.

Bucket Studio Co share price

Squid Games 1

Source: Bloomberg

Showbox Corp share price

Squid games 2

Source: Bloomberg

While it remains to be seen if the share price move is justified with a commensurate increase in future earnings, the small market cap of Bucket Studio (US$160 million) makes such a move easier to justify given the scale of the show’s popularity (most watched Netflix series in 76 countries).

The share price moves goes to highlight the power of narratives and viral hits and their impact on investors. I am reminded of Nintendo’s share price moves on the initial launch of Pokemon Go in mid 2016, which sparked a 120 per cent surge in the shares over the next fortnight, before falling approximately 34 per cent from its peak in the next month….

Nintendo share price

Squid games 3

Source: Bloomberg

…. however, even with the initial euphoria in July / August 2016, the shares have still been a relatively attractive investment as the value of original content has been better appreciated by investors, as shown in the chart below.

Nintendo share price

Squid games 4

Source: Bloomberg

Goes to show following popular culture trends can lead to impressive share market returns!

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Joseph is the Portfolio Manager of The Montgomery Fund and Head of Fundamental Research. Joseph has over fourteen years’ experience in equities research, funds management and M&A. Before joining Montgomery, he was a Senior Analyst at Colonial First State Global Asset Management responsible for coverage of resources, energy, infrastructure and industrials sectors. Joseph’s prior experience includes roles in equities research at JP Morgan and at Ellerston Capital.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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