Overseas Investors Jump Into Korea Stocks After Kim’s Death
December 22, 2011, 9:52 PM ESTBy Saeromi Shin and Ian Sayson
(Updates with today’s Kospi trading in sixth paragraph.)
Dec. 22 (Bloomberg) -- 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 yesterday, the most since Dec. 1, according to data from Korea Exchange Inc. A net 564.9 billion won 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 yesterday 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 Ltd. said on Bloomberg Television yesterday. He declined to comment on whether Baring Asset had bought stocks when reached later by phone.
Cheapest Market
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 today as foreign investors sold a net 25 billion won.
Export-related stocks climbed yesterday, led by Samsung Electronics Co., as U.S. data showed the nation’s housing starts increased 9.3 percent to a 685,000 annual rate in November, exceeding the highest estimate of economists surveyed by Bloomberg.
South Korea has so far seen little impact to its economy since Kim’s death, Deputy Finance Minister Kang Ho In told reporters yesterday in Seoul.
The nation will take “preemptive” 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.
Kim’s Successor
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 Plc, which oversees about $326 billion of assets globally, said by phone yesterday. “At this point in time, there’s nothing to suggest that that transition will not be smooth.”
Won, Bonds
The won gained for a second day yesterday, jumping 1.3 percent to 1,147.60 per dollar, according to data compiled by Bloomberg. It weakened 0.6 percent today, though is still 0.2 percent stronger than its closing price on Dec. 16, before Kim’s death was announced by North Korean state television.
Yields on South Korea’s 3.5 percent won-denominated bonds due in September 2016 fell two basis points, or 0.02 percentage point, to 3.51 percent yesterday, according to Korea Exchange Inc. prices. The yield reached 3.57 percent on Dec. 19, the highest level since Nov. 2. Bonds were little changed today.
“The main risk is you have a transition of power which could result in instability or a coup and so on because the son is quite young,” Andrew Salton, head of investment at Dah Sing Bank Ltd. in Hong Kong, said in a phone interview yesterday. “So it’s really no clearer than it was before if there is any change in direction for North Korea.”
-- With assistance from Kyoungwha Kim in Seoul. Editors: Darren Boey, Richard Frost
To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Ian Sayson in Manila at isayson@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
