Korea: overlooked and underappreciated
The rapidly developing peninsular country has 3 factors going for it.
Published August 22 2023
James Cook
Investment Director of Emerging Markets
There’s a good reason Korean stocks don’t get a lot of love. The country’s equity market, the KOSPI, tends to rise and fall quite sharply, and when prices do fall, they tend to fall very low. Over the past decade, the Korean index underperformed the MSCI AC Asia ex-Japan IM Index and several major Asian sub-indexes (including India and Taiwan). Last year, it was the worst-performing market in the Asia ex-Japan region. So, why is Korea such a large overweight in our EM strategies? Here are three key reasons:
- Who doesn’t want to “buy low and sell high?” We look to buy companies when earnings are depressed and companies are trading at trough P/E multiples. In our view, the valuations in Korea are incredible, offering a unique opportunity to find high-quality names trading extremely cheap, and lower-quality (not low quality) names at exceptional prices.
- This is not your grandfather’s Korea The country is relatively stable and lacks a lot of the idiosyncratic, geographic and demographic challenges of is neighbors. Sure, there is some risk due to the ongoing tensions with North Korea, but not to the same degree as the geopolitical tensions that have tempered China.
- It’s very close to becoming a developed country The $1.9 trillion KOSPI in June lost its latest bid to exit MSCI’s list of 24 EM index countries. But MSCI sounded encouraged by Korea’s ongoing push with capital market and foreign exchange reforms, and we expect it eventually will join the developed-market ranks, with a higher level of transparency that should attract investors.
For these reasons, we prefer Korean stocks, particularly for their potential if the global economy improves (and even if it doesn’t given its many industry-leading companies that are innovating and expanding in their fields). In our view, Indian stocks remain too expensive despite a good long-term outlook, while a semiconductor cycle that arguably has peaked presents problems for Taiwan. In short, Korea in our view is overlooked and underappreciated. Fine by us.