Foreign investors beat a retreat on Naver stock

Naver, whose Line messaging service propelled shares to levels twice as expensive as Google, is getting sold by overseas investors faster than any other Korean stock amid concerns that the rally went too far.

Foreigners sold a net $638 million of the shares during the past month, the most among Kospi index members, according to data. Naver, which also operates the nation’s most-popular search engine, sank 13 percent from a record on March 10, after a 99 percent surge during the previous year that left it trading at 43 times its estimated 12-month profit.

While Line’s expansion to 400 million users spurred analysts to give Naver the highest rating among the world’s major Internet companies, Shinhan BNP Asset Management says the stock is vulnerable to further losses as investors reassess valuations in the industry. Even after its drop, Naver trades at a more than 100 percent premium versus Google and is almost four times more expensive than Korea’s benchmark Kospi index.

“The stock price needs to be put in check after rallying so much, and this goes for other Asian Internet companies as well,” said Im Jeong-jae, money manager at Shinhan BNP Paribas, which oversees about $33 billion. “The question comes down to whether the price of this expensive stock could be justified. It’s not easy for investors to have conviction on this.”

Technology companies had led gains in Asian equities during the past 12 months amid speculation that growing demand for social networking, e-commerce and online games would boost earnings and fuel takeovers in the industry.

Naver, Korea’s seventh-biggest company by market capitalization, tumbled 6.5 percent Monday to its lowest level since Feb. 25, amid a sell-off in regional peers including Tencent Holdings, operator of the WeChat messaging service, that sent the Bloomberg Asia Pacific Internet Index to its biggest one-day drop in two months. The Nasdaq Composite Index of U.S. tech stocks dropped 2.6 percent April 4 to the lowest level in two months.

About $3.3 billion has been erased from Naver since March 10, leaving it valued at $23 billion, or just below the level of San Francisco-based microblogging service Twitter.

“I sold the stock as investors were getting too excited,” Lee Jin-woo, a money manager at KTB Asset Management, which oversees about $7 billion, said by phone last week. “This is a time for investors to check up on the company.”

Global money managers have sold Naver shares for the past 20 days, with the outflows since March 10 amounting to more than half the $1.03 billion of net inflows in the previous 12 months, according to data. Overseas investors have added about $262 million to Korean shares since March 10. Won Yun-sik, a spokesman at Naver in Seongnam, Gyeonggi, declined to comment on why foreign investors sold the company’s shares.

“We don’t see the Internet companies in Korea and China being attractive enough in terms of returns to take the risk at current valuations,” David Gaud, a senior money manager who helps oversee about $120 billion at Edmond de Rothschild Asset Management in Hong Kong, said in an email.

The Kospi index climbed 1.8 percent since March 10, paring its retreat this year to 1.1 percent. The won has weakened 0.5 percent against the dollar in 2014, while the yield on three- year government bonds climbed 3 basis points to 2.91 percent.

The long-term rally in Naver isn’t over, according to Heo Pil-seok, the chief executive officer at Midas International Asset Management in Seoul who bought the shares in the past six months. The company is expanding in Japan, Southeast Asia and Latin America, and the potential initial public offering of Line may give the stock a further boost, Heo said.

Bloomberg