South Korea is likely to be a major beneficiary of the improvements in the growth prospects of the US and China, according to Baring Asset Management.

A gradual recovery in demand in key markets such as the US and China is expected to work in favour of the Korean equity market, and particularly Korean exporters, which account for a significant proportion of the market index, the firm said in a statement.

However, despite this expected improvement, Barings says that Korean equities lagged behind the wider Asia (ex-Japan) region at the start of this year, pointing to a move by the Bank of Japan “engineering a weaker Japanese yen” as a driving factor for the negative impact on Korean exportation.

With recent reports of North Korea conducting nuclear weapons testing, investor sentiment toward Korea has been “impacted”, but at the same time the firm believes that Korean equities tend to recover quickly from crisis, “returning to normal levels within three days”.

In a look ahead, Barings predicts an improvement in performance for Korean equities, and has expanded its exposure to the industrials and materials sectors, as well as to Korean shipbuilders - such as Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering.

Meanwhile, the firm believes that technology remains “an important investment theme” of the Korean market.

Earlier this month, Barings said that investors should pay attention to ASEAN countries, in particular Thailand, Indonesia and the Philippines in light of their strong and continued growth.