The announcement of a third round of quantitative easing in the US and the European Central Bank's bond buying programme has spurred markets and led to a marked improvement in investor sentiment in recent weeks.
We expect economically-sensitive markets to be positively impacted by a stabilisation of the eurozone debt crisis and a more aggressive growth agenda in the US. Given its close linkages to global growth as an exporter to both the US and China, Korea is a major beneficiary of the improving economic and political backdrop, in our view, and domestic equities have rallied in the wake of recent policy moves, with the Korea Stock Exchange KOSPI Index returning 5.1% in Sterling terms since the ECB's announcement on 6th September*.
Looking ahead, we expect Korean equities to further attract and reward investors over the rest of 2012. While demand from Europe has slowed and will likely remain weak for the foreseeable future, we believe that Korean exporters - which account for a large proportion of the KOSPI - are well positioned to benefit from increasing economic activity in the US and strong consumer demand from developing markets.
At the individual stock level, we are encouraged that large global companies such as Samsung Electronics and Hyundai Motor continue to gain brand recognition and grow market share in their respective sectors. Elsewhere, we are also becoming more positive on the outlook for Korean shipbuilders such as Samsung Heavy Industries which should benefit from a relatively high oil price environment and recovering demand for drill rigs, drillships and floating production, storage and offloading (FPSO) units from the oil industry.
The changing landscape of the Technology sector also remains an important investment theme for the Baring Korea Trust. Overall demand for mobile devices such as smartphones and tablets continues to grow and Korea is positioned at the core of this. In this regard, Samsung Electronics remains a key holding for the portfolio and we believe that Samsung smartphones are one of the few viable contenders to the Apple iPhone.
Elsewhere, we have holdings in selected supply chain beneficiaries such Interflex, which manufactures flexible printed circuit boards to both Samsung and Apple. Interflex continues to take market share away from its Japanese competitors and the recent launch of Samsung's Galaxy S3 handset and Apple's iPhone 5 should help underpin strong earnings growth over the coming months.
The Trust is also positioned to benefit from rising consumption and wealth creation in both Korea and key overseas markets such as China through our holdings in sectors such as Consumer Discretionary, Consumer Staples and Health Care. We particularly favour high-end consumer names which we believe can capitalise on the Chinese tourism boom. Outside of Hong Kong and Macau, Korea is now the most favoured travel destination for increasingly affluent Chinese tourists and this is supporting the outlook for hotels and casinos.
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