Buy Korean Equities Now Before Discount Narrows, Says Barings

Now is an attractive entry point into the Korean equity market, due to   the strength of the country’s corporations and attractive valuations, says Hyung Jin Lee, manager of Baring Korea Trust. 

“We are in a ‘sweet spot’ for increasing exposure to Korea, because we foresee a narrowing of the ‘Korea discount’.  Since the Asian financial crisis, corporations have been increasing dividend yields and decreasing debt levels. Many blue-chip Korean corporations such as Hyundai Motor, Samsung Electronics, and POSCO are essentially in net cash positions for example.  We expect there is a good chance of the Korea discount to narrow further over the long term."

“As a key trading partner to both developed markets such as the US and emerging economies like China and India, Korea will be positively impacted by the secular growth of emerging economies and the cyclical recovery of developed markets,” says Lee.  Due to robust operating environments, positive earnings growth, and attractive valuation ratios, Korea is set to outperform. 

As Korea powerhouses, such as Hyundai Motors and Samsung Electronics are rising to the top of their sectors, Korean companies are becoming increasingly competitive in the global markets, the firm believes.

“Over the next ten years or so we see great opportunity for Korean autos, technology stocks, and industrial companies to move further up the food chain. The market is almost at full employment and so the domestic story is becoming increasingly well supported,” says Lee.

To even further enhance this expected growth, increasing disposable income in the Chinese and Korean consumer markets will cause travel and tourism to drive more growth.  Lee believes this increasing growth will lead MSCI to upgrade Korea to a developed market, following such a move by FTSE.