This $223 Billion Fund Manager Is Undeterred by Scandals Engulfing KoreaBy and
Kospi’s return-on-equity is heading for 10th monthly gain
Foreigners have bought net $2.31 billion shares since Nov. 8
Scandals gripping South Korean corporate and political circles are making the nation’s stocks a bargain.
That’s the view of ABN Amro Private Banking’s chief investment officer Didier Duret and others snapping up shares in Asia’s cheapest equity market. They’re betting negative headlines won’t spoil earnings per share on the benchmark Kospi Index that are forecast to nearly double in the next 12 months.
The developments have scared off some investors, and the equity gauge is trading at its lowest valuation since 2014 even after advancing 5 percent over the past two months. Investigations into alleged influence peddling have led to the impeachment of President Park Geun-hye and prompted prosecutors to seek an arrest warrant for Jay Y. Lee, a top executive at Samsung Electronics Co., the country’s largest company.
“The corruption probes and all this is an enormous distraction from the fundamentals,” said Duret, who oversees ABN Amro’s 209 billion euros ($223 billion) of client assets.
The 59-year-old reckons the country can do well at a time when global economic growth is improving. The nation’s stocks have attracted a net $2.31 billion of foreign investment in the past two months.
Samsung highlights how expectations for rising profitability can trump the scandals. Its share price has risen 17 percent in the past two months. A court in Seoul turned down the arrest request for Lee on Thursday.
Not everyone is on board.
UBS AG Wealth Management’s regional chief investment officer in Singapore, Kelvin Tay, said he remains cautious about South Korean equities as the investigations will delay restructuring of family-run conglomerates, known as chaebols. The likely addition of China A-shares to the MSCI Emerging Markets Index in the middle of this year also poses a risk, Tay said, as some investors may sell Korean equities in favor of those listed in Shanghai to match benchmark allocations.
But Duret draws parallels to Brazil last year, when President Dilma Rousseff was impeached and Petroleo Brasileiro SA, known as Petrobras, became embroiled in a corruption scandal. That didn’t stop foreign investors putting money into the country, which also enjoyed a wide valuation discount, he said.
Others have also been more upbeat. Mark Mobius, executive chairman of Templeton Emerging Markets Group, said in November the latest political scandal in Korea didn’t dim his outlook for Asia’s fourth-largest economy and that it would in fact lead to more reforms.
— With assistance by Heejin Kim, and Abhishek Vishnoi