Overseas investors jump into Korea stocks
SEOUL, South Korea — Foreign investors bought the most Kospi index stocks in three weeks as some fund managers overlooked possible political upheaval in North Korea to buy equities in South Korea, Asia’s cheapest major market.
Overseas investors purchased a net 329.9 billion won ($287 million) of shares in Kospi companies this week, the most since Dec. 1, according to data from Korea Exchange Inc. A net 564.9 billion won ($489 million) was sold during the previous two days, the data showed, after the death of North Korean leader Kim Jong Il sparked concerns over succession in the totalitarian nation.
The Kospi slumped 3.4 percent on Dec. 19 when Kim’s death was announced, dragging the gauge’s valuation to 1.1 times net assets, the cheapest level since Nov. 27. The index rallied 4 percent since then as the government pledged to take action to soothe markets and maintain growth in Asia’s fourth-largest economy. The Kospi climbed 3.1 Wednesday as better-than-estimated U.S. housing data boosted the outlook for South Korea’s overseas shipments.
“With the case of North Korea, one should not extend that to something too dramatic, and one should use that as an opportunity to buy stocks because the Korean exporters are very strong,” Khiem Do, the Hong Kong-based head of multi asset strategy at Baring Asset Management said on Bloomberg Television Wednesday. He declined to comment on whether Baring Asset had bought stocks when reached later by phone.
The Kospi trades at 8.8 times estimates for next year’s earnings, the cheapest in Asia after Pakistan and Vietnam, according to data compiled by Bloomberg. Japan’s Nikkei 225 Stock Average is at 12.8 times, while Hong Kong’s Hang Seng Index is at 9.2 times.
The Korean gauge fell less than 0.1 percent Thursday as foreign investors sold a net 25 billion won.
South Korea has so far seen little impact to its economy since Kim’s death, Deputy Finance Minister Kang Ho In told reporters Wednesday in Seoul.
The nation will take “pre-emptive” action to cope with any impact on its markets and economy from Kim’s demise, Finance Minister Bahk Jae-wan said at a meeting in Seoul on Dec. 19. While risks from North Korea are rising, the South has recovered quickly from any North Korea-related shocks in the past, Bahk said.
The Kospi fell 0.8 percent on July 11, 1994, the first trading day after North Korea announced the death of Kim Il Sung, Kim Jong Il’s father. The gauge advanced 18 percent in the next four months.
The focus now is on Kim Jong Il’s successor, his son Kim Jong Un, who is thought to be in his late 20s and who was named to senior military and party posts last year in the first official notice that he was being groomed to take over. North Korea’s state media called for citizens to “loyally follow” the younger Kim, according to a Dec. 19 statement.
“If you look at the past, historically when you have these tensions between the North and South or in the last leadership change in North Korea, the markets basically had a very short- term reaction before it starts recovering,” Lee King Fuei, a Singapore-based fund manager at Schroders, which oversees about $326 billion of assets globally, said by phone. “At this point in time, there’s nothing to suggest that that transition will not be smooth.”