15th April 2013
As South Korea raises its alert level in response to the North’s increasingly belligerent rhetoric on potential missile tests, Korea’s stock market has taken a hit says Sang Chul Kim, Head of Local Investment, Schroders Korea.
The KOSPI index has lost around 5% of its value in recent days but Schroders points out that historically the market has usually rebounded.
The note says: “If we look back on the history of market movements after past tensions, the market quickly rebounds after the initial correction. We are assuming the base case scenario of a one-off event, such as a test missile launch, where the market tends to recover after it has taken place.”
The fund manager has even added to positions.
“Foreign investors are putting pressure on the index due to the perceived uncertainty, and intraday volatility is increasing accordingly. Our stance remains largely unchanged, though. Many market participants have taken the view that this risk is an opportunity to buy. We ourselves have maintained our prior investment views, while also taking advantage of the current volatility to add to certain positions.
More generally, Schroders says the fall in the yen remains an issue. The note continues: “We remain wary of names with interests in heavy machinery which are under further competitive pressure from Japanese companies, given the recent weakness of the yen. These companies are already starting to gain market share in China. We currently prefer to focus on technology companies that have a global competitive edge compared to their Japanese peers. These include internet and gaming companies, along with some domestic names, which are set to benefit from the China consumption story and further stimulus policies from the Korean government.”