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Korea’s Stocks, Asia’s Second-Cheapest, May Rise, Oberweis Says

South Korean stocks, the second-cheapest in Asia, are among the “most attractive” in the region and may post further gains after their longest rally in almost five years, Oberweis Asset Management Inc. said.

South Korean stocks may climb as exports to China, the biggest buyer of the nation’s goods, jumped 37 percent in July, government data showed. The benchmark Kospi stock index rose 0.3 percent in the three months ended June 30, its sixth quarterly advance and the longest stretch of increases since 2005.

The Kospi index has gained 6 percent this year, trading at 9.9 times estimated earnings, the lowest in Asia after Pakistan’s 7.7 multiple. Overseas investors bought a net 2.9 trillion won ($2.5 billion) of shares in companies on the gauge last month, the most since April, according to Koscom Corp., which provides financial data from the Korea Exchange Inc.

“Kospi’s valuation is among the most attractive in Asia,” John Wong, a Hong Kong-based portfolio manager for Oberweis Asset, said in an interview yesterday. “Many Korean companies are generating an increasing percentage of their sales from China,” which should buffer any slowdown in the U.S. or Europe.

Seoul-based LG Chem Ltd., South Korea’s biggest maker of chemicals, posted a record profit in the second quarter, beating analyst estimates, as Chinese demand for materials used to make plastics and synthetic rubber increased. Car sales in China also helped lift Kia Motors Corp.’s second-quarter earnings by 61 percent as the Seoul-based automaker introduced new models.

‘Healthy’ Tech Spending

Technology stocks remain attractive as spending on new products is expected to remain “healthy,” said Wong, whose Oberweis Asia Opportunities Fund beat 95 percent of peers last year. He didn’t name individual stocks.

China now accounts for about 25 percent of South Korea’s exports, up from 14.6 percent in 2002. The U.S., who used to be South Korea’s largest market until 2002, is now buying about 11 percent of the nation’s exports, according to a trade ministry release. China’s economy will expand 10 percent this year and 8.9 percent in 2011, based on the median forecasts of economists surveyed by Bloomberg.

Allianz Investment Management is less optimistic, saying the Korean stock gauge will remain “range-bound” for the next few months after recent gains. The Kospi has gained 90 percent from its October 2008 low, beating all except India and Brazil among the world’s 15 biggest stock markets.

“I sense the Kospi is approaching the top of a trading range,” Singapore-based Nikhil Srinivasan, who oversees over $30 billion of assets as chief investment officer for Asia at Allianz, said in an interview. “Some of the larger index stocks may show slower earnings momentum.”

‘Under-Owned’ Market

Foreign fund flows to Korea are lower than most Asian nations and investors should buy the “under-owned” market after India led overseas investment into Asian emerging markets, Credit Suisse Group AG analysts led by Sakthi Siva said this week.

South Korea, Asia’s fourth-largest economy, grew 1.5 percent last quarter from three months earlier as exports surged and local demand revived. The economy will grow 5.9 percent this year, more than the 5.2 percent predicted in April, the central bank said on July 12.

“Economic growth led by China will remain healthy in Asia,” said Oberweis’ Wong. “There is still upside to Kospi.”

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