S. Korea Funds Record Largest Outflows Since 2009, Citi Says

South Korean mutual funds recorded the largest outflows since 2009 in the past week amid “disappointing” earnings, according to Citigroup Inc.

The nation’s funds lost 5 percent of assets under management, equal to $671 million of outflows, in the week ended Feb. 6, Markus Rosgen and Yue Hin Pong, Hong Kong-based Citigroup analysts, wrote in a report today, citing EPFR data. Asian funds lured $981 million, the 22nd straight week of inflows, the analysts wrote.

South Korea’s Kospi Index has fallen 2.5 percent this year as Samsung Electronics Co. predicted a stronger won may cut operating profit by $2.8 billion this year and Hyundai Motor Co. reported a decline in fourth-quarter earnings because of the currency’s appreciation. Some 75 percent of Kospi companies have reported quarterly profit that missed estimates, according to data on 69 corporate results compiled by Bloomberg.

The past week’s fund outflows “are partly because of the disappointing earnings season in Korea,” Pong wrote in an e-mailed reply to questions today. “Analysts started cutting their estimates.”

The Korean currency has strengthened 23 percent against the yen in the past six months and appreciated 3.3 percent versus the dollar. A stronger currency makes the nation’s exports more expensive and less competitive against international rivals.

The Kospi added 0.9 percent to 1,949.36 as of 12:58 p.m. in Seoul, poised to snap a six-day, 1.7 percent slump.

Hyundai, Kia

Korean stocks have “further downside risk” as the strengthening won prompts international investors to extend sales of local shares, according to a Barclays Plc report released on Feb. 7. Expected economic stimulus by the new government and changes in interest-income tax rules should encourage local fund flows into equities, the report said. The nation elected a new president in December.

Hyundai Motor Co., South Korea’s biggest automaker, has declined 5.3 percent this year and Kia Motors Corp. slumped 8.3 percent. Hyundai said on Jan. 24 fourth-quarter net income sank 5.5 percent, while Kia reported a 51 percent slump in operating profit the next day. Hyundai rallied 3.5 percent at 1:17 p.m. local time, while Kia rebounded 3.8 percent.

Hyundai Motor Group, the group to which both automakers are affiliated, expects the won to strengthen further this year, Kia said in a Jan. 4 e-mail. Samsung forecast on Jan. 25 a slowdown in smartphone demand in developed markets in the first quarter.

Vanguard ETF

A decision by Vanguard Group Inc. to drop South Korean stocks from its emerging markets exchange-traded fund could lead to $9 billion of outflows from equities in the first quarter, Barclays said in a Feb. 4 note. Vanguard said Oct. 2 its $61 billion ETF would track an index compiled by FTSE Group, which classifies South Korea as a developed market, instead of MSCI Inc.’s gauge.

The International Monetary Fund is likely to pare its forecast for South Korea’s economic growth for 2013, following reduced estimates by the nation’s central bank on Jan. 11. The full-year expansion may be about 3 percent, compared with a 3.9 percent estimate in September last year, country mission chief Hoe Ee Khor said in an interview in Seoul last month.

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