Korean grid stocks surge as our thesis plays out

What happened

Korean power equipment manufacturers have been among the strongest performers in the clean energy space this year, driven by accelerating global demand for grid infrastructure. Stocks such as LS Electric Co Ltd, Hyosung Heavy Industries Corp, and HD Hyundai Electric Co Ltd extended their rally through October, supported by robust Q3 results, record order intake, and full order books stretching several years ahead.

In September, we published our note “Sustainable Future: shifting to infrastructure and reliable power” highlighting this structural trend and increasing our portfolio exposure accordingly. Since then, market momentum has continued to build as Korean manufacturers gain share in major export markets, particularly the U.S. and Middle East, where grid investment and data center expansion are driving equipment shortages.

Since that reallocation, Korean grid leaders have gained between 75% and 85%, reflecting both strong fundamentals and growing investor recognition of their central role in the global grid build-out.

Impact on our Investment Case

Grid bottleneck turning into earnings power

Our grid allocation is translating into tangible earnings visibility. Korean power equipment manufacturers are benefiting from a sustained shortage of high-voltage transformers and switchgear worldwide. Delivery lead times in the U.S. remain close to three years, while prices have risen sharply since 2021, supporting margin expansion. Order visibility now extends well into 2027–2028, and industry capacity is set to increase by more than 40% by 2026 to meet surging global demand positioning Korean grid stocks for even stronger gains.

Korea gaining global share

Korean grid original equipment manufacturers (OEMs) have consolidated their position as key suppliers to utilities in the U.S. and the Middle East. North America already accounts for more than 40% of new orders and backlog for major players, and local subsidiaries are expanding capacity to secure longer-term contracts. HD Hyundai Electric Co Ltd is doubling its U.S. transformer output, Hyosung Heavy is increasing U.S. capacity from around $200mn to $400mn per year by 2026, and LS Electric Co Ltd is tripling its high-voltage transformer production in Korea. These expansions illustrate how Korean manufacturers are filling supply gaps left by Western peers, combining cost competitiveness, technological depth, and reliable delivery.

Pricing power intact despite tariffs

Although new U.S. import tariffs on Korean transformers and switchgear (up to 25%, effective mid-2025) have added near-term uncertainty, their financial impact remains limited. Tight supply and urgent replacement needs allow most Korean producers to pass through a large portion of the additional costs, keeping pricing and margins broadly resilient. Hyosung Heavy and HD Hyundai both reported margin improvement in Q3, while LS Electric Co Ltd saw a temporary decline due to higher tariff costs, with recovery expected as repriced contracts take effect in 2026. Overall, all three companies maintained strong order intake and backlog growth despite the new tariff regime, and profitability should continue to expand into 2025–2026 as higher-priced export projects are executed.

Our Takeaway

Korea remains one of the best-performing markets globally this year, supported by sustained foreign equity buying and investor deposits reaching an all-time high of around ₩87tn. This liquidity and confidence provide a solid backdrop for our industrial holdings.

Within this environment, LS Electric Co Ltd, Hyosung Heavy Industries Corp, and HD Hyundai Electric Co Ltd stand out as key beneficiaries of the accelerating grid-capex cycle.

We are confident with our current ~17% exposure to Korea, including about 9% in grid infrastructure and the remainder in complementary baseload power (nuclear) and energy storage. This differentiated positioning stands out in a sector where most global clean-energy funds hold only 1–2% exposure to Korea, giving us a stronger foothold in one of the fastest-growing and most strategically important segments of the energy transition.