Steel price hike cheers Macquarie

It was a “very special event” that convinced investor Park Hong-sik that global growth has seen the worst - and that event was price hikes by Posco, Korea’s biggest steelmaker and a bellwether for global manufacturing.

The Seoul-based Park, whose Macquarie New Growth Securities Feeder Investment Trust 1 fund beat 99 percent of peers over the past five years with an 11 percent annual return, saw that Posco raised prices every month in 2016. Those were the first increases in about five years, which is very special for markets, said Park, chief investment officer for equities at Macquarie Investment Management Korea, in an interview at his office.

“The global economy appears to be heading back to a normal track” after suffering a phase of deflation and low growth for the past five years, he said. “I will add large cyclical stocks that show great earnings growth.”

Even as the World Bank this month cut its global growth forecast for 2016, Korean companies most affected by economic cycles - from commodities to construction and shipbuilding - have climbed.

That’s a stark contrast to stocks immune to the economic swings, such as cosmetic makers, that were darlings of investors last year. Posco is up 23 percent this year versus a 40 percent slump last year. AmorePacific, which sells skin care products, is down after an 87 percent jump in 2015.

The global economy can’t crash further because the U.S. job market has almost reached full employment and commodities have probably reached a floor, Park said.

The investor, who correctly predicted a rally for Korean cosmetics and health care companies in 2015, said his portfolio had been tilted last year to cosmetics. He said he now wants to make it more balanced by putting more large-cap cyclical stocks into it.

In April, Posco reported profit that beat estimates in the first quarter, adding to signs Asian producers are recovering. Hyundai Heavy Industries, one of the world’s biggest shipyards, has surged 22 percent this year. Battered by the deepest industry slump in at least two decades, shipbuilders are being restructured with the help of the government.

“There is some hope that the second half would be stronger than the first half, and that would boost cyclical stocks,” Kelvin Tay, chief investment officer at UBS Group AG’s wealth management business in Singapore, said in a phone interview. “But I think we need to keep in mind some events that are actually happening right now and see whether the rebound would be actually sustained.” Bloomberg