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Tennessee Is 137,000 Retirees Worth Of Sure That South Korea Isn’t Going To Get Nuked

Famous last words? “The long-term history with this situation is that it’s a lot of posturing and not much reality.”

Not-so-veiled threats of nuclear conflict and a war of words between “Little Rocket Man’’ and “the mentally deranged dotard’’ haven’t discouraged Tennessee’s pension fund from investing big-time in South Korea.

Believe it or not, we did not write that.

That’s actually verbatim from a new Bloomberg article, and it underscores the fact that even mainstream media outlets have given up on trying to figure out how to phrase things in a way that downplays the inherent absurdity in all things Trump.

But note that the reference to “Little Rocket Man” and America’s “mentally deranged dotard” of a President isn’t the only thing amusing about that passage. Tennessee has become the largest holder of the South Korea ETF. And as Bloomberg goes on to note, it’s actually Tennessee’s second-largest holding after Apple.


To be sure, there are reasons to like South Korean equities. As we’ve noted on any number of occasions, earnings growth is fantastic and, partly as a result of that, valuations are bargain basement. Have a look:



But the risks here are obvious. No, you can’t hedge against a nuclear war, but this idea that because of that, South Korean shares a no-brainer right up until the apocalypse is disingenuous and I’ll tell you why. If war actually breaks out on the peninsula or worse, if North Korea were to actually nuke the South, the fact is that’s not going to immediately usher in the dark ages for the rest of the world. There’s still going to be some trading to do.

Conceivably, the value of your South Korean equities could collapse along with the won while everything else outside of Korea is still trading. So it is not accurate to say “well, you can’t hedge nuclear armageddon, so why not buy South Korean shares at attractive valuations?” We’re not talking about nuclear armageddon. We’re talking about nuclear armageddon for Korea. If what everyone was talking about was a nuclear war between the U.S. and Russia or between the U.S. and China, then sure, you could very reasonably claim that “you can’t hedge it.” That is, it wouldn’t make any sense to say something like “I’m staying away from the S&P because it’s possible that America and Russia nuke each other.” If that happens, the S&P is going to be the last thing anyone is worried about.

But the same can’t be said for South Korean shares. The Kospi could disappear tomorrow and, assuming your operation wasn’t physically located in the blast radius, you’d still have to trade.

On top of that, it’s not exactly like South Korean shares haven’t rallied. Valuations notwithstanding, the Kospi is up sharply on the year and indeed, it has now recouped the entirety of its “fire and fury”/ICMB/H-bomb losses. Here’s an annotated chart of the ETF:


The title on Bloomberg’s chart makes an important point (namely that things have indeed gotten dicey since the beginning of August), but do note what that chart also shows: the ETF is up something like 30% YTD.

The idea that a state pension fund should have that as its second-largest holding given the geopolitical backdrop is beyond absurd. “The state’s $51 billion retirement plan and a scholarship fund has $517 million riding on South Korea’s stock market,” Bloomberg goes on to note before adding that “the state now holds about 7.3 million shares” which is a country mile ahead of the second-biggest U.S. pension plan with a stake in the ETF – the Employees Retirement System of Texas, which owns a paltry (by comparison) 225,000 shares.

And it gets better (or worse, depending on how you want to look at it). Consider this:

Tennessee is also the largest holder of ETFs that bet on Taiwan, Brazil and Chile, and has invested in stock ETFs in India and Mexico.

I’m sorry, but what the actual f*&k? Are you serious? They’re loaded up on EM ETFs at a time when the Fed is starting to normalize the balance sheet and seems hell-bent on hiking, low inflation be damned?

Bloomberg goes on to say that South Korean firms have invested upwards of $1 billion in Tennessee. Which makes us wonder if those firms would be as excited about Tennessee as Tennessee is about South Korea if Kentucky were threatening to nuke Nashville.

Anyway, Tennessee has cut its position in the South Korea ETF by 15% this year, but not because they wanted to. It was “to rebalance [our] holdings, and not because [we’re] fretful over war,” Michael Brakebill, chief investment officer of the plan told Bloomberg.

Michael’s take on the geopolitical atmosphere: “The long-term history with this situation is that it’s a lot of posturing and not much reality.”

So the 137,000 retirees that depend on monthly benefits can rest easy. Michael has this all figured out.





2 comments on “Tennessee Is 137,000 Retirees Worth Of Sure That South Korea Isn’t Going To Get Nuked

  1. Curt A Tyner

    Whoa, WTF are these people thinking! This is absurd on so many levels my head is spinning. I guess there aren’t any other options for these “smartest guys in the room” crazies. Uh….no…these people really think they are teflon.

  2. Seriously GREAT ARTICLE (not shouting, just emphasizing my appreciation).
    Forgive my ignorance but where is the data coming from? number of shares in Korean ETF’s held by state pension plans?

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