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South Korea Offers `Huge Buying Opportunity' After Shelling, SocGen Says
Declines in South Korean stocks after an artillery attack by North Korea offer a “huge” opportunity to buy equities in a cheap market, according to Societe Generale.
The Kospi Index fell 0.5 percent to 1,918.87 as of 1 p.m. in Seoul, having slumped as much as 2.4 percent earlier. The Bank of New York Mellon Korea Index sank 4.2 percent in U.S. trading yesterday. Stocks in the Kospi trade at an average 9.6 times estimates for next year’s profit, the third-lowest valuation in Asia after Pakistan and Vietnam, data compiled by Bloomberg show.
“Shut your eyes and buy this sell-off,” analysts led by Todd Martin, Societe Generale’s Asia equity strategist, wrote in a report dated today.
Yesterday’s shelling killed two soldiers and set houses ablaze in the worst attack by North Korea on its neighbor in at least eight months. South Korea will supply “ample” liquidity in local and foreign currencies if needed to shield markets, the finance ministry said after an emergency meeting of government and central bank officials this morning.
Tensions with nuclear-armed North Korea have risen in the past year after the sinking of the South Korean warship Cheonan in late March killed 46 sailors. The Kospi lost 0.3 percent on March 29, the first day of trading after news of the sinking emerged, and has climbed 13 percent since then.
Quick Rebound
“Similar confrontations in the past showed the impact on financial markets was very limited,” said Vana Bulbon, chief executive officer at UOB Asset Management (Thai) Co., which oversees about $1.8 billion of assets. “The stock, bond and financial markets rebounded quickly from the initial declines after the confrontation. I expect a similar recovery this time, when most investors don’t see the incident escalating.”
President Barack Obama dispatched envoy Stephen Bosworth to Asia this week after a U.S. scientist reported that North Korea had built a uranium-enrichment plant. Obama said he “strongly condemned the attack” and told counterpart Lee Myung Bak in a telephone call that the U.S. “stands shoulder to shoulder” with its Asian ally. The two leaders agreed to hold joint military exercises and training “in the days ahead,” according to a White House statement released late last night in Washington.
“If this escalates into a real war, of course it will start to affect the stocks,” said Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd. in Hong Kong. “It would make the entire region very unstable and we would need the U.S. to step in.”
Yang and HLG Asset Management Sdn.’s Chief Executive Officer Geoffrey Ng, who is based in Kuala Lumpur, said they may use stock declines to purchase equities.
“History has shown these incidents to be viewed as buying opportunities and this one is no different,” Societe Generale’s analysts wrote in their report.
To contact the reporter for this story: Darren Boey at in Hong Kong or dboey@bloomberg.net.
To contact the editor responsible for this story: Laura Zelenko at lzelenko@bloomberg.net.
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