South Korea is a crouching Asian tiger ready to pounce for investors once the world economy picks up, according to analysts.
The country’s is tipped as one of the likely big winners from any upturn in the global economy – which could give brave investors handsome returns for taking a chance now.
The prediction comes from Barings Asset Management, who believe that South Korea will be one of the biggest beneficiaries of better trading but points to the nation’s markets ‘lagging’ which could offer opportunities for investors.
Hyung Jin Lee, an investment manager with the firm, said: “One factor for the relative underperformance of their markets is the perception that moves by the Bank of Japan to weaken their currency could have negative implications for South Korean markets.
“However, we don’t think this is anything more than a short term headwind and we believe that South Korean firms will grow their markets in the long term.”
He added that potential investors should not be put off by the activities of the country’s neighbour, North Korea, since historically financial activity north of the border does not affect South Korean markets.
Mr Lee said: “There will be fluctuations but the relative low share price and recovering global demand puts South Korean equity in a good position for investors.”
The only way is up for markets
Economic trend data from JP Morgan Asset Management is showing economies in G10 countries, including the UK and Japan, are running above the trend for recovery.
The firm’s Nick Gartside said: “The move away from the troughs seen several months ago illustrates a significant and impressive recovery is under way.
“The question remains as to why this upturn has been seen in risk assets but not for government bonds.
“One answer could be that growth is being spurred by capital’s low cost for consumers, which has helped to push up valuations for risk assets.
“The converse of this is that a sharp rise in bond yields and a corresponding increase in capital costs for consumers is a potential worry for valuing risk assets.”
Mr Gartside highlighted that the recovery appeared is building on low yield bonds, but a recent increase in returns will show whether the recovery is sustainable..
How to enjoy Asia Pacific successes
With many financial analysts pointing to the Asia Pacific region as a potential source of huge profits there are worries that many investors don’t know or appreciate the best way to capitalise on the boom.
To help those wanting to understand more, Schroder’s head of Asia Equities, King Fuei Lee reckons investors should not always look to a country’s stock market as a fair indicator of growth or potential.
“People believe that as the economy grows, so do profits and this leads to a higher stock market but that couldn’t be further from the truth,” he said.
“Instead, investors should focus on dividends, which are probably a stronger indicator of economic growth because these can only be paid out of corporate profits.”
Mr Lee said that valuation was important and for those investors looking for long-term gains should look at buying equities now.
