South Korea Stocks Cheapest to Analysts Predicting 30% Returns
By Michael Patterson and Saeromi Shin
April 16 (Bloomberg) -- The rally that lifted South Korea’s benchmark equity index to a 22-month high yesterday has further to run, according to analysts who are more bullish on the country’s stocks than any other major market worldwide.
The Kospi rose 1.1 percent this week after the central bank predicted economic growth will accelerate to the fastest since 2006 and Moody’s Investors Service increased the nation’s credit rating. Shares are undervalued by an average 30 percent, the most among the 22 biggest emerging markets, based on price estimates from at least 4,400 analysts compiled by Bloomberg.
Fisher Investments Inc., Invesco Ltd. and Seoul-based Mirae Asset Global Investments, which manage a total $514 billion, say South Korean stocks are attractive while “buy” ratings make up 53 percent of analyst recommendations, the highest proportion among the 50 biggest markets, Bloomberg data show. Surging exports and a rebound in consumer demand on record-low benchmark interest rates will spur a 45 percent rise in profits this year, according to analyst forecasts on Bloomberg.
“I love everything about South Korea,” said Ken Fisher, the billionaire investor whose Woodside, California-based Fisher Investments oversees about $40 billion. Fisher owns shares of companies including steelmaker Posco and Woori Finance Holdings Co., the nation’s third-biggest financial firm by market value, according to fourth-quarter regulatory filings.
10-Week Climb
The Kospi rose to 1,743.91 yesterday, the highest closing level since June 2008. Even after a 10-week rally, the longest stretch of gains since June 2007, the index’s 31 percent advance during the past year has trailed the biggest emerging markets. The 22-country MSCI Emerging Markets Index jumped 63 percent as the global economy recovered from its first recession since World War II.
South Korea’s exports rose 35.1 percent in March, more than economists forecast. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, said April 6 that first-quarter profit increased sevenfold after demand for personal computers and televisions drove up prices. Hyundai Motor Co. and Kia Motors Corp., South Korea’s largest automakers, led a ninth straight gain in monthly car sales in March after new models spurred demand at home and overseas.
Gross domestic product will increase 5.2 percent in 2010, the Bank of Korea said on April 12, raising its outlook from a December forecast of 4.6 percent. The pace of growth and “exceptional” economic resilience prompted Moody’s to raise South Korea two days later to A1, the fifth-highest investment- grade rating.
Won Rally
“We are generally optimistic on the Korea market” as earnings rise, Simon Jeong, a money manager at the Hong Kong unit of Invesco, which oversees $420 billion worldwide, said in an e-mail. “The Kospi will end the year higher.”
South Korea’s reliance on exports puts investors at risk from any disappointment in global economic growth while a steeper-than-expected strengthening in the country’s currency may limit gains, said Koo Jae Sang, who helps oversee $54 billion as the Seoul-based chief executive officer of Mirae Asset. The won has gained 21 percent against the dollar during the past 12 months.
Stocks are still attractive because valuations are cheap relative to peers, according to Koo. The Kospi trades at 10.9 times estimated profits, the third-lowest among the biggest emerging markets after Turkey and Russia, Bloomberg data show.
“Many companies are still pretty much undervalued compared to global peers, and therefore attractive,” Koo said. “There’s more upside from here.”
To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net
Last Updated: April 15, 2010 19:18 EDT