Emerging Markets

Barings Is Positive On Investment In Korea For Long Run

Chrissy Coleman Asia Correspondent 12 April 2013

Barings Is Positive On Investment In Korea For Long Run

Despite escalating geopolitical tensions, Barings Asset Management has said it remains optimistic about Korea’s long term case for investment

HyungJin Lee, head of Asian equities at the asset manager summarised the country’s recent worrying series of events in his Investment Update on North Korea report, released yesterday: The last few weeks have seen North Korea moving to declare a “state of war” with its southern neighbour. South Korea’s defence ministry has said that the South Korea and US joint military command has raised its “Watchcon3” status by one level amid signs that North Korea is getting ready to launch missiles. Japan has also deployed anti-missile defences in Tokyo as a precaution.

“While these latest developments are clearly alarming, we believe the worst case scenario is most likely to be avoided and that geopolitical tensions will gradually subside from here. Rather than start military conflict, we believe North Korea is most likely attempting to strengthen support for its new leader Kim Jong-un by creating an external crisis,” Lee said.

Barings is also encouraged that China, North Korea’s main regional ally, has distanced itself from Pyongyang (the capital of North Korea). The firm said it believes China is likely to step in to diffuse tensions as it has in the past, but remains “vigilant and continue to monitor the situation closely”.

According to Lee, it is also important to recognise that North Korea’s provocations have historically had only a short-term impact on Korean equities. “These incidents are relatively frequent and usually temporary in nature, and Korean equities have generally recovered quickly from North Korea-related events,” he said.

Investment outlook

From an investment perspective, Lee said the firm remains positive on the long-term outlook for Korea. “Given its close links to global growth, we believe that Korea is one of the major beneficiaries of the recent improvement in the health of the global economy. In our view, a gradual recovery in demand in key markets such as the US and China should be positive for the Korean equity market and particularly Korean exporters which account for a significant proportion of the market index,” Lee said.

Against this backdrop, Barings said it continues to use any periods of market weakness as a potential opportunity to add to its positions across the Korean and Asia ex Japan portfolios it manages in Hong Kong.

Earlier this month,Baring Asset Management completed the acquisition of SEI Asset Korea, “considerably” expanding the firm’s presence in Korea.

The firm said that the acquisition of SEIAK, now Baring Asset Management Korea, underlines its strong commitment to what is the third largest market for asset management services in Asia. It adds approximately $7.4 billion to Barings’ assets under management, according to a statement from Barings last week.

Barings currently has approximately $53 billion under management and 517 employees as at 28 February 2013 and 1 February 2013, respectively.

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