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Korean exporters well positioned to benefit from increasing US economic activity
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Technology remains important theme for Baring Korea Trust at 20th anniversary
As an exporter to both the US and China, Korea is set to be a major beneficiary of the improving economic and political backdrop, according to Baring Asset Management ("Barings"), the international investment firm. Domestic equities have rallied in the wake of recent policy moves, with the Korea Stock Exchange KOSPI Index returning 4.4% in Sterling terms since the ECB announcement on the 6th September.
Commenting on the investment case for Korea, Hyung Jin Lee, Manager of the Baring Korea Trust which this week celebrates its 20th anniversary said, "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.
"On this basis, we expect Korean equities to further attract and reward investors over the rest of 2012 and longer term as well. 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."
For example, at the individual stock level, Barings is positive on Orion, a leading Korean confectioner that not only benefits from stable domestic demand, but also from other emerging Asian markets. Through its aggressive overseas expansion since 1995, Orion now generates more than 50% of its revenue from its overseas businesses, including China, Vietnam, and Russia. In China, Orion has a good chance of gaining further market share through category expansion and capacity addition based on its established strong brand power. We believe the Chinese confectionery market is highly attractive in terms of both long-term growth opportunities for volume and average selling prices as the market remains underpenetrated in western-type snacks.
Barings is also 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, Barings is 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 remains an important investment theme for the Baring Korea Trust.
HyungJin continued, "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."
HyungJin concluded, "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. In addition to stocks such as Orion, we also 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."
Since its inception on the 3rd November 1992, the Baring Korea Trust has returned 8.8% annualised in Sterling terms, as at 30th September 2012. According to Morningstar Direct data, as at 30th September 2012 the Trust is 1st quartile in its peer group over one and three years.
In August of this year, Baring Asset Management (Barings) acquired SEI Asset Korea Co., Ltd (SEIAK). The acquisition considerably expanded Barings' presence in Korea, which is the third largest market for asset management services in Asia.
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