As China moved to use "rare earths," a core material for high-tech industries, as a bargaining chip with the United States by imposing export controls, investor interest in related corporations is growing. With anxiety mounting over the global rare earths supply chain, shares of related stocks have surged. The move is seen as investor sentiment being buoyed by expectations that related corporations could see windfall gains as the United States diversifies its supply chain.
Experts pointed to corporations in which the U.S. government holds equity and corporations related to heavy rare earths as promising investment targets, while emphasizing the principle of diversification through exchange-traded funds (ETFs).
Rare earths, a collective term for 17 elements with similar chemical and physical properties, are essential raw materials for high-tech industries such as electronic devices and defense. As the scale of high-tech industries expands rapidly, demand is rising, but mining and refining are demanding, and environmental pollution issues during processing mean there are not many production sites worldwide. China currently dominates more than 70% of global rare earths production and more than 90% of refining.
According to the Korea Exchange on the 14th, Hanwha Asset Management's "PLUS Global Rare Earths & Strategic Resources Production Corporations" ETF rose 15.35% this month (1–13). Over the same period, the KOSPI index gained 4.67%. The product invests intensively in major corporations such as the U.S. flagship rare earths ETF REMX, Lithium Americas (LAC), MP Materials (MP), and Lynas Rare Earths (LYC).
In particular, on the 13th, there was even a fleeting episode in which the ETF's price spiked abnormally intraday, pushing the premium/discount rate (the gap between an ETF's market price and net asset value) above 36% before reversing lower.
In the brief moment after the ETF's liquidity provider (LP) exhausted its inventory, then reset and posted new quotes, individual buying funds poured in, triggering the volatility interruption (VI) mechanism. If investors bought the product at a frothy price without considering the premium/discount, they likely suffered losses. It was brief, but it showed how strong individual investors' interest is in the rare earths theme.
Rare earths-related stocks drew attention because China moved to tighten export controls on rare earths. China's Ministry of Commerce announced a "decision on export controls for rare earths overseas" on the 9th, saying that from December, foreign corporations and individuals seeking to export rare earth products for civilian and military use must obtain a "dual-use item export license." Rare earths used in system and memory semiconductors and semiconductor manufacturing equipment will also be subject to individual review.
After the measure, shares of rare earths-related companies jumped in domestic and overseas stock markets. However, in the domestic market, stocks cited as rare earths plays tend to be theme stocks that swing on short-term news before concrete results are verified, and corporations listed on overseas markets have limited information, making them difficult to invest in.
Experts advise that it is first necessary to focus on mineral corporations in which the U.S. government directly holds equity. They judge that related corporations could benefit from policy support, as the Trump administration eased regulations on mineral resources through two executive orders and other measures, expanded direct investment, and pursued a state-led expansion of the supply chain.
Among corporations in which the U.S. government holds equity is MP Materials (MP), a rare earths producer. Other mineral corporations mentioned include Lithium Americas (LAC) and Canada's Trilogy Metals (TMQ).
Some also advise paying attention to the strategic importance of heavy rare earths. Rare earths are broadly divided into heavy and light rare earths; light rare earths have abundant reserves and can be produced outside China. In contrast, heavy rare earths have limited supply and are treated as scarcer strategic minerals.
Na Min-sik of SK Securities said, "Among rare earths, the strategic importance of heavy rare earths in particular is coming to the fore," adding, "U.S. government support will continue for USA Rare Earths, a developer of heavy rare earths, and Critical Metals (CRML)."
Given the volatility of individual corporate investments, a diversification strategy using exchange-traded funds (ETFs) is also important. A representative rare earths ETF is "Rare Earth/Strategic Metals (REMX)," which diversifies into global corporations that derive at least 50% of revenue from strategic minerals businesses such as rare earths, lithium, and cobalt. In Korea, the "PLUS Global Rare Earths & Strategic Resources Production Corporations" ETF is cited as the only investment product in this field.
There are also points to note when investing in rare earths-related stocks. A researcher in alternative investments said, "During the 2011 rare earths export control issue, related stocks surged and then plunged when China eased export restrictions," adding, "Given that share prices are already high, a cautious approach is needed from a valuation perspective."