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JPMorgan Keeps Faith in Korea Stocks Amid Longest Drop Since ’08

Hyundai vehicles
Hyundai Motor Co., South Korea’s biggest automaker, and DGB Financial Group Inc. are among JPMorgan’s top stock picks, according to the May 8 report. Photographer: Martin Divisek/Bloomberg

May 9 (Bloomberg) -- The longest losing streak for South Korean stocks in five years has only made them more attractive to JPMorgan Chase & Co.’s Adrian Mowat.

The U.S. bank’s head of Asia and emerging-market equity strategy says Korea is his top pick for the second quarter, citing low valuations, growing exports and signs that the nation’s family-run companies will improve governance. He reiterated his overweight rating in a note yesterday titled “Keeping Faith,” after the Kospi index fell for eight straight days through May 7, bringing its drop this year to 3.6 percent.

Korean equities have underperformed emerging-market peers this year, with foreign investors unloading $693 million of shares on speculation a stronger won will erode the nation’s competitiveness. Those concerns will probably dissipate as the U.S. economy accelerates, according to Mowat. Korea’s exports jumped 9 percent last month, beating economist estimates, while the central bank left its key interest rate unchanged today and the government said it will speed up spending to spur growth.

“We are looking for markets that will benefit as exports accelerate in line with our developed market forecast,” Mowat, who raised his rating on Korean shares from underweight in July before a 13 percent rally over the following three months, said in a phone interview yesterday.

The Hong Kong-based strategist said he’s recommending exporters and financial companies, which tend to benefit as bond yields rise with a strengthening economy. Hyundai Motor Co., South Korea’s biggest automaker, and DGB Financial Group Inc. are among JPMorgan’s top stock picks, according to the May 8 report.

Relative Value

The Kospi rose less than 0.1 percent to 1,951.29 at 11:46 a.m. in Seoul, while the MSCI Emerging Markets Index was little changed. The South Korean gauge is valued at 9.9 times estimated earnings for the next 12 months, versus a multiple of 10.5 for the developing-nation measure, data compiled by Bloomberg show.

The Bank of Korea held the seven-day repurchase rate at 2.5 percent for a 12th straight month, it said in a statement in Seoul today, as forecast by all 16 economists in a Bloomberg News survey. The BOK last month estimated inflation will pick up to its target range in the second half of 2014, with Asia’s fourth-biggest economy posting 4 percent growth for the full year, the fastest since 2010.

The government plans to spend 57 percent of this year’s budget in the first half to support consumption, the finance and other ministries said in an e-mailed statement.

New disclosure requirements in Korea on executive pay, signs that companies are open to increasing dividends and the potential for changes in the ownership structure of the nation’s family-owned businesses, known as chaebol, are all positive developments, according to Mowat.

“We think a number of large chaebols are going to be restructuring how they hold assets,” he said.

To contact the reporter on this story: Weiyi Lim in Singapore at

To contact the editors responsible for this story: Michael Patterson at Allen Wan

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