Korea's President Might Be Impeached and its Markets Are Surgingby and
New team could ‘kick-start’ reforms needed to boost expansion
Shares are cheap and have room to rally: Korea Value Asset
The end of Park Gyeun-hye’s presidency can’t come fast enough for investors in South Korean assets.
The benchmark Kospi stock index jumped 1.4 percent on Tuesday, the most in almost a month, amid speculation Park would be impeached before an announcement after the market closed that she would step down.
The president will leave office in April, Yonhap TV reported, citing ruling party floor leader Chung Jin-suk. Her resignation will pave the way for a presidential election 60 days after she steps down. If parliament were to impeach her, Park would be suspended from power unless the move was rejected by the constitutional court.
"The current government is in a state of vacuum, and investors are anxious about it,” Heo Pil Seok, the Seoul-based chief executive officer at Midas International Asset Management, which oversees around $7.2 billion, said before the announcement that Park will step down. "The sooner the new government comes in, the better."
The won strengthened 0.3 percent to 1,171.22 a dollar, the biggest gain in Asia after Indonesia’s rupiah, before news of Park’s resignation broke. Credit-default swaps on South Korean debt have been falling since mid-November on expectations the beleaguered president, who became entangled in an influence-peddling scandal, would be forced to step down.
The Kospi index has fallen 2.6 percent this quarter, and the won has weakened 6 percent against the dollar. The 12-month price-to-earnings ratio for the share gauge has dropped to 10.2 from as high as 11.7 in April. Equities still have room to rebound because they’re cheap, said Chaiwon Lee, chief investment officer at Korea Value Asset Management Co. in Seoul.
“Maybe it’s time to buy some large caps with low valuations,” he said. “The rally of the so-called growth stocks -- small and mid caps with high valuations -- has been gradually fading this year.”
Park’s resignation clears the way for a new government to come in and revive an economy that’s struggled to sustain 3 percent growth in recent years after regularly exceeding 4 percent last decade.
The Korean economy is facing headwinds including the prospect of faster inflation and interest-rate increases in the U.S., along with concern President-elect Donald Trump will adopt a protectionist trade policy when he takes office in January.
“Right now, a lot of government work has come to a halt due to the investigation,” said Min Gyeong-won, a currency analyst at NH Futures Co. in Seoul.