South Korean stocks: a bet on global growth

South Korean stocks have slid by around 5% this year, but the outlook is improving. The Kospi index has always been highly exposed to the global cycle, since exports account for 55% of GDP. Tech giant Samsung comprises 20% of the market and car group Hyundai makes up 5%.

The weather-related disruptions to global trade of the past few months now seem to be wearing off, notes Morgan Stanley. Korean exports grew by 9% year-on-year in April, from 5% in March.

America, where the recovery appears to be strengthening, is especially important. Every 1% change in US growth implies a 0.8% change in Korea’s figure, says Bank of America Merrill Lynch.

Unlike many emerging markets, Korea runs a current account surplus, so it doesn’t depend on foreign cash. At the same time, its solid infrastructure, political stability and highly educated workforce make it an attractive investment destination.

Finally, stocks are on just nine times this year’s earnings, making South Korea Asia’s cheapest market bar China, says Assif Shameen in Barron’s. Exchange-traded funds (ETFs) such as the DB X-Trackers MSCI Korea TRN Index ETF (LSE: XKSD) may now be worth looking into.

Merryn

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