Some Kospi alternatives to the blue chip blues

[YONHAP]

As Korea’s top electronics and automaker shares, long the backbone of Kospi growth, continue to disappoint, analysts at brokerage firms say it’s time for investors to consider alternatives.

They recommend that investors look into shares of companies that are likely to benefit from policies of the incoming Park Geun-hye government and China’s economic recovery, and domestic-oriented companies and small and medium enterprises (SMEs) that will benefit from a new regulation under President Lee Myung-bak’s shared growth initiative.

The Korean stock market is currently caught in a perfect storm consisting of the Vanguard Group’s decision to sell off Korean stocks over 25 weeks as it switches its benchmark for emerging market funds, the weakening Japanese yen and disappointing fourth quarter results for major exporters.

These negative factors have the Kospi down 1.76 percent year-on-year in January at the same time that markets in the United States, Japan and China grew between 5 and 6 percent.

The Kospi was 2,030 on Jan. 2, buoyed by the U.S. government’s last-minute fiscal cliff deal, and closed at 1,938.18 yesterday.

Park Geun-hye effect

Analysts said shares linked to new policies and plans mapped out by the incoming Park Geun-hye government are one of the best bets for investors seeking alternatives.

The presidential transition team announced last month that the science and technology section of the Ministry of Education, Science and Technology, and the applied research and development department of the Ministry of Knowledge Economy will be merged to create the new Ministry of Future Planning and Science, and the Ministry of Maritime Affairs and Fisheries, currently under the Ministry of Land, Transport and Maritime Affairs, will be revived.

“Policies related to the Ministry of Future Planning and Science will drive growth of the local stock market at the beginning of the year,” said Park Seung-young, an analyst at Torus Investment and Securities. “The role of the ministry will be stronger and broader than its predecessor - the Ministry of Information and Communication under the Roh Moo-hyun government - because it will control key businesses run by other ministries.”

In a bid to boost venture capital investments in Korea, Park said, the incoming Park administration may adopt Israel’s Yozma (Hebrew for “initiative”) model under which the Israeli government in 1993 promised to match foreign venture capital investments in the country.

“Key businesses that will be overseen by the Ministry of Future Planning and Science include contents, platform, network and device industries,” he said.

Park added that other beneficiaries of the new ministry will be entertainment companies that own content; portal sites, including NHN, that export platforms for the free mobile messenger service LINE; and financial institutions that have a strong investment banking business.

Choi Yong-ho, an analyst at Woori Investment and Securities, said he expects companies in domestic-oriented sectors such as health care, finance, IT service and construction to do well under Park’s policies.

China and more options

China’s better-than-expected indicators showing signs that the world’s second-largest economy is back on track is more good news for investors.

“Shares of local companies in shipbuilding, steel, chemicals and marine shipping, which reacted sensitively to the Chinese economy are likely to get a boost,” said Sung Yeon-joo, an analyst at Daishin Securities.

“Investing in stocks of companies related to Chinese customers’ consumption, such as retail, is another good option as many Chinese tourists are expected to visit Korea during the Chinese Lunar New Year holiday Feb. 9 to 15,” said Choi Yong-ho of Woori Investment and Securities.

Hanwha Investment and Securities has advised investors to pay attention to small- and medium-sized system integration providers like AhnLab, Hancom, Daou Tech and Insung Information that will benefit from a government ban that took effect in January.

As a part of the Lee Myung-bak government’s shared growth initiative between conglomerates and SMEs, the conglomerates’ affiliates, such as Samsung SDS and LG CNS, are prohibited from bidding on orders for system integration service by government or state-run entities.

“As long as the strong won and weak yen continues, investors’ attention on domestic-oriented companies shares will continue, and they are encouraged to keep their eyes on securities firms,” said Kim Ji-young, an analyst at Kyobo Securities. “If the Kospi falls steeply, investing in two market leaders, including Samsung Securities, is recommended as they’re safe bets.”

Daishin Securities said foreign investors bought the most Korean stocks when the won moved between 1,100 and 1,150 against the dollar in anticipation of lower profits for Korean exporters.

It said foreign investors snapped up a combined 37.1 trillion won ($34.1 billion) of Korean stocks when the exchange rate stood between 1,100 won and 1,150 won in the past 13 years, but they dumped 43.7 trillion won of stocks when the won strengthened to between 900 won and 950 won against the dollar.

By Kim Mi-ju [mijukim@joongang.co.kr]