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Photographer: SeongJoon Cho / Bloomberg
Photographer: SeongJoon Cho / Bloomberg
For investors looking to take advantage of the story of global reflation in 2021, South Korea appears to be one of the hottest places in Asia.
Global funds are buying stocks in the nation’s high-tech equity market at the fastest rate in four years this quarter, helping to make Kospi Asia the top-performing benchmark index in 2020. At $ 58 billion, your local bond purchases this year are underway for a record. And the won is battling the yuan for the number one spot in the region.
Next year is shaping until be another optimist for Korean assets even as coronavirus infections are on the rise. A revival of the memory chip cycle is forecast to lift the local economy out of its first recession in 1998, prompting JPMorgan Chase & Co. to predict that the Kospi will rise 16% to 3,200 by the end of 2021. The won could test 1,000 to the dollar, a level not seen since the 2008 global crisis, which leaves a rise of almost 9% from the current level, according to Bloomberg Intelligence.
“I remain constructive about the Korean economy and more about tech stocks,” said David Chao, Hong Kong-based global market strategist for Invesco with $ 1.2 trillion in assets. “The industry is bolstered by strong exports driven by an investment cycle that is just beginning to take off. After a challenging year, the semiconductor industry is finally starting to shine. “
Profits matter
Kospi’s EPS projection for 2021 stands out, outperforming its global peers
Source: Bloomberg
Analysts are also becoming increasingly positive. Kospi companies’ profits are projected to grow 43% in 2020, one of the few indices that will see profits expand during the Covid-19 outbreak. That’s versus a 7.2% drop expected for S&P 500 companies. By 2021, Kospi’s earnings growth is projected to be twice the US gauge.
The optimistic earnings outlook is supported by the latest trade data, which shows that the recovery in Asia’s fourth-largest economy is expanding beyond the semiconductor industry. Cyclical sectors, including automobiles and petrochemicals, will lead the 2021 stock rally, a classic case of trade reflation resembling a market boom in the wake of the 2009 global crisis, Hyundai Motor wrote. Securities in a report.
Credit Suisse Group AG echoes the view, writing in its 2021 outlook report that Asian emerging market benchmarks would enter a “super-profit cycle” amid prospects for better global trade. In South Korea, earnings are beginning to bottom out and the cyclical recovery will favor tech, auto and banking companies, according to the report.
Optimistic Mobius
“We are optimistic about the Korean market next year due to the increase in high-tech spending that is taking place around the world,” said Mark Mobius, co-founder of Mobius Capital Partners LLP, in an email. “We already have a substantial stake in Korea and will continue to hold it.”
Korean exports rose 27% in the first 10 days of December, helped by a 52% increase in semiconductor shipments, official data showed on Friday. Overall, Bloomberg surveys show that exports may rise 5.5% next year after declining 3.9% in 2020, helping the economy grow 3.2% after a contraction in the economy. 1.1% this year.
That said, the Kospi’s 26% jump this year, which is heading for its best annual performance since 2009, has also boosted its valuation. The gauge is trading at 13.7 times its 12-month future earnings, versus a five-year average multiple of 10.5. That, coupled with escalating coronavirus cases across the nation, could act as a deterrent for some investors.
READ: Bank of Korea warns that vaccines will not eliminate uncertainty
External flows
However, for now, the rally in trading is attracting active investors and also driving passive flows into Korean exchange-traded funds. That helped the won to gain more than 6% this year, while local currency bonds returned 8.2%, beating an average gain of 6.8% in global emerging market notes, they show. the Bloomberg Barclays indices.
Korean assets may attract more inflows as expectations of further dollar weakness and a rebound in growth in a post-vaccination world continue to rise. At 30%, foreign ownership of local shares remains close to the lowest level of 2016.
“The additional liquidity would have to seek investment opportunities and investors could be drawn to 5G-related stocks in South Korea,” said Stephen Chiu, a currency strategist at Bloomberg Intelligence in Hong Kong, expecting these flows to raise the won to 1,000. next year.
– With the assistance of Ishika Mookerjee
(Add details from the Credit Suisse report in the seventh paragraph.)
