Korean stocks no longer hated, deemed cheap

Korean stocks have gone from Asia’s most-hated equities to the favorites of international investors after valuations fell to a six-year low versus global shares and exports rebounded.

Foreign money managers bought a net $1.04 billion of Korean equities this month, the most among 10 Asian markets tracked by Bloomberg, following $7.2 billion of withdrawals this year through July.

The nation’s stocks trade at the same value as companies’ net assets, versus 1.9 times for the MSCI All-Country World Index, the biggest discount since 2007. The benchmark Kospi index has rallied 5.9 percent from an 11-month low on June 25, paring its 2013 loss to 5.6 percent.

Hyundai Motor and Kia Motors, the nation’s top automakers, and SK Hynix, the world’s No. 2 computer-memory chipmaker, are attracting money as exports fuel the fastest economic growth in two years. Fund managers who help oversee $1.1 trillion at HSBC Global Asset Management, Aberdeen Asset Management, ABN Amro Private Banking and Edmond de Rothschild Asset Management all say they are bullish.

“We are turning more positive on the country overall on the extremely cheap valuation,” said David Gaud, a Hong Kong-based senior money manager at Rothschild, which oversees about $157 billion. Korean shares may return 20 percent in the next six months, he said. “The global cycle overall should improve and Korea should be an interesting proxy.”

The last time Korean stocks were this inexpensive compared with global equities was January 2007, when the Kospi jumped 42 percent in six months and outperformed the MSCI All-Country index by 36 percentage points, monthly data compiled by Bloomberg show. The benchmark gauge for Korea’s $1.1 trillion market trades at an 18 percent discount versus its average price-to-book ratio of 1.2 during the past decade.

“It’s very rare” for valuations to fall this low, said Bill Maldonado, the Asia-Pacific chief investment officer in Hong Kong for HSBC Global Asset Management, which oversees about $413 billion. “You’ve got a great opportunity there.”

The Kospi index dropped 0.4 percent to 1,877.79 at 12:23 p.m. local time, while the MSCI Asia Pacific Index declined 1.6 percent. Hyundai and Kia shares both gained 1.7 percent. Overseas money managers bought a net $55.1 million of local equities so far today.

Foreign investors have added money to Korean shares this month as they sold a combined $5.8 billion of stocks in nine other Asian markets tracked by Bloomberg. Thailand recorded $1.1 billion of outflows as data showed the economy contracted in the second quarter.

Korean exports increased 2.6 percent in July from a year earlier, following a 1 percent decline in the previous month, government figures show. Asia’s fifth-largest economy grew 1.1 percent in the second quarter from the first three months, the fastest pace since 2011.

“It makes sense to buy Korea, especially companies that are export-oriented,” said Daphne Roth, the Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about $207 billion.

The economy may be vulnerable to a withdrawal of stimulus, said Lee Moo-kwang, a Singapore-based money manager at Truston Asset Management, which oversees about $9.5 billion.

“We haven’t bought Korean stocks recently,” Lee said.

Bloomberg