Tags: BlackRock | Korea | stocks | market

BlackRock Buys Korea Stocks as Valuations Attract Foreigners

Friday, 26 September 2014 06:10 AM

BlackRock Inc., the world’s largest money manager, has been buying South Korean stocks after valuations fell to seven-year lows versus regional peers and the government took steps to bolster economic growth.

The firm has an overweight position in Korea after lifting holdings to the highest level in “a long time,” said Andrew Swan, BlackRock’s head of Asian equities in Hong Kong. Foreign investors purchased a net $4.95 billion of Korean shares this quarter, the most among eight Asian markets tracked by Bloomberg, as valuations fell to the steepest discount since 2007 compared with the MSCI Asia ex Japan Index.

While the won’s strength has curbed export earnings and spurred a 3.8 percent drop in the MSCI Korea Index this year, policy makers are moving to bolster Asia’s fourth-largest economy with interest-rate cuts and increased government spending. A recovery in domestic demand may help shrink Korea’s current-account surplus and curb the currency’s appreciation, according to Swan.

“There’s a lot of negativity already priced into the Korean stock market,” Swan, whose BlackRock Asian Dragon Fund has outperformed 87 percent of peers tracked by Bloomberg during the past three years, said in a Sept. 24 interview. “That’s really where we’re starting to see some opportunity.”

The MSCI Korea index was little changed at the close today, after earlier falling as much as 0.8 percent. Companies in the gauge are valued at about the same level as their net assets, a 36 percent discount versus the regional index, according to data compiled by Bloomberg.

Korea Upgrade

The $4.95 billion of inflows into Korea this quarter are more than three times as big as those into Taiwan. They compare with about $4 billion for India and $1.6 billion into Thailand.

“Some of the active funds have upgraded the Korean equity market from underweight,” said Oh Sung Sik, the Seoul-based chief investment officer for Korean equities at Franklin Templeton Investments.

The won’s strength against the yen poses a risk to Korean exporters, which have Japanese rivals, according to Daphne Roth, the Singapore-based head of Asian equity research at ABN Amro Private Banking.

The Korean currency has gained about 2 percent against the yen during the past month. Samsung Electronics Co., Korea’s biggest company by market value, has declined 5.9 percent during the period, while Hyundai Motor Co., the largest automaker, retreated 16 percent.

No Catalysts

“I’ve been looking at it again, because it’s so cheap, but the won hasn’t helped and the yen hasn’t helped,” said Roth, whose firm oversees about $218 billion. “I just don’t see a lot of catalysts.”

Korea’s government is trying to offset the won’s strength by stimulating domestic demand, said Swan, whose holdings in Korea include financial, consumer and construction companies.

Finance Minister Choi Kyung Hwan has announced an 11.7 trillion won ($11.2 billion) stimulus package, eased mortgage lending controls and outlined plans to give tax breaks to companies that boost dividends and investments since he took over in July. The central bank cut its policy rate to the lowest in more than three years in August.

“We could be at the early stages of a bottoming in the South Korean equity market,” said Swan, whose firm oversees about $4.3 trillion worldwide. “We have more exposure there than we have had for a long time.”

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BlackRock, the world's largest money manager, has been buying South Korean stocks after valuations fell to seven-year lows versus regional peers and the government took steps to bolster economic growth.
BlackRock, Korea, stocks, market
Friday, 26 September 2014 06:10 AM
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