Korea’s Kospi Gains Most in Asia on Valuations, Fed Stimulus Speculation

South Korean stocks advanced, with the benchmark index rising the most in Asia, as losses this month drove valuations to the cheapest level in almost three years and amid speculation the Federal Reserve will take steps to bolster the faltering U.S. economic recovery.

The Kospi Index (KOSPI) climbed 3.9 percent to 1,776.68 at the 3 p.m. close in Seoul, halting a three-day, 9.6 percent drop. The gauge sank 20 percent this month through yesterday to the lowest level since July 8, 2010, amid concern the U.S. economic recovery is faltering and Europe’s debt crisis may spread.

“There seems to be a bit of bargain-hunting interest here after recent sell-offs left valuations of many stocks quite attractive,” said Lim Chang Gue, a fund manager in Seoul at Samsung Asset Management Co., which oversees about $30 billion.

The Kospi has dropped 13 percent this year, pushing valuations of the 780 member stocks down to 8.9 times estimated profit, the second-lowest valuation in Asia after Pakistan’s benchmark gauge, according to data compiled by Bloomberg. The multiple fell to 8.6 times yesterday, the cheapest since November 2008. The rout in the stock market this month prompted South Korea to ban equity short sales and the nation’s central bank to keep interest rates unchanged.

Shares are rebounding before central bankers meet this week in Jackson Hole, Wyoming, where Fed Chairman Ben S. Bernanke’s hint of a second round of asset purchases last year spurred a 28 percent rally in the S&P 500 that ended on April 29. Preliminary data showed an index of Chinese output may have climbed to 49.8 in August from 49.3 in July. Separate reports will probably show German manufacturing grew at a slower pace and U.S. home sales declined.

Hyundai Motor, Mando

Hyundai Motor Co. (005380), which tumbled 31 percent this month through yesterday, advanced 10 percent. SK Innovation Co. rallied 11 percent. It’s dropped 39 percent in the same period.

Daewoo Engineering & Construction Co. rose 9.6 percent, leading South Korean builders higher, after Mirae Asset Securities Co. said the companies may benefit from expected reconstruction works in Libya. Hyundai Engineering & Construction Co. climbed 9.8 percent.

Hanjin Shipping Co., South Korea’s largest shipping line, jumped by the daily limit of 15 percent as a rebound in freight rates raised expectations earnings may recover in the third quarter.

Mando Corp. (060980), an automotive parts maker, jumped 12 percent, the biggest advance since May 2010, after announcing a plan to buy back 200,000 shares.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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