South Korea’s stocks will rise to a record this year as export growth to the U.S. and China allows the nation to withstand higher oil prices, according to Samsung Asset Management Co., the country’s biggest money manager.
The U.S. economy will gradually recover this year, while China will loosen its monetary policies to spur growth, said Jeon Jeong Woo, Seoul-based managing director for equities at Samsung Asset, which manages $30 billion. While the market may “pause in the short term” if oil jumps, the rising trend is unlikely to be reversed, he said in a Feb. 27 interview.
South Korea’s Kospi index has gained 9.8 percent to 2,003.69 this year to yesterday, rebounding from an 11 percent drop last year, as exports to the U.S. recovered and slowing inflation allowed policy makers to cut or hold off on raising interest rates. The index trades at 10.1 times estimated profit, below the four-year average of 11.1 times, according to data compiled by Bloomberg. That compares with a multiple of 10.8 for the MSCI Emerging Markets Index and 9.6 for the MSCI BRIC Index, which tracks Brazil, Russia, India and China.
“The Korean market’s valuations are not expensive, and its member companies have a global leadership, which should keep attracting interest,” said Jeon. His Samsung My Best Securities Investment Trust 1 (5636926) fund has returned an annualized 26 percent in the past three years, beating 60 percent of its peers, according to data compiled by Bloomberg.
Among South Korean stocks, chemical, machinery, technology and construction companies are likely to outperform the benchmark index this year, according to Jeon, who declined to name any shares. The Kospi is on course for the biggest January to February gain since 2005 and is 11 percent shy of a record high reached in May last year.
The South Korean index climbed 1.4 percent to 2,031.35 as of 1:39 p.m. Seoul time today.
The U.S. and China, which accounted for a combined 34 percent of South Korean exports last year, are showing signs of economic recovery. U.S. purchases of new homes exceeded forecasts in January, while confidence among consumers rose more than forecast in February.
The Chinese government cut lenders’ reserve-ratio requirements this month for the first time this year to spur growth. An index of the nation’s manufacturing that’s scheduled for March 1 may show a rebound to 50.9 in February, above the threshold for expansion, according to a Bloomberg survey of economists.
Exports to the U.S. rose 23.3 percent in the first 20 days of January, while those to China, the biggest buyer of South Korean goods, increased 7.3 percent, the Ministry of Knowledge Economy said on Feb. 1. Samsung Electronics Co. (005930), a maker of chips and mobile-phones, derived more than a quarter of sales from America in 2010, data compiled by Bloomberg show.
South Korean inflation may accelerate above the government’s forecast on higher oil prices, just as the nation’s economic growth is about to start improving, Finance Minister Bahk Jae Wan said.
Crude futures in New York rose 6.3 percent last week to the highest level since May as escalating tension with Iran threatens supplies. Prices sank 2.9 percent the past two days and rose as much as 0.4 percent in electronic trading today.
“It’s really tricky to predict oil price movements,” Samsung Asset’s Jeon said. “The recent price level was event driven. Positive developments in the real economy would outweigh that.”
Standard Life Investments Ltd.’s Andrew Milligan, who helps oversee about $262 billion as the firm’s Edinburgh-based head of global strategy, said in a Bloomberg Television interview on Feb. 27 he likes Korea as the nation could benefit if this is going to be a year for a global economic recovery. Nomura Holdings Inc. sees the Kospi’s rally continuing, analyst led by James Kim wrote in a Feb. 23 report.
“More signals of fundamental improvements” will justify the recent stock rally that was mostly driven by global money supply, Jeon said. “Bets on riskier assets will increase” as more signs of economic recovery emerge, he said.
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