By Peter Irving, CEO of Atlantis Investment Management Korea will continue to generate growth inte...
Korea will continue to generate growth internally and is geared to a recovery in the external environment via its exposure to chip, auto and electronics industries.
Within the Asia-Pacific region, the Korean economy continues to show growth, while many of the other economies in Asia are already in recession. The government has cut interest rates this year and the budget is more than capable of providing further impetus to the economy.
Inflation has been easing since the middle of the second quarter last year, with the November figure of 3.4% safely within the Government's target range of 2%-4%. It would seem that there might be further room for interest rate cuts with inflation under control.
Much of recent focus by investors has been on the terrorist attacks on the US and how this is going to affect the US and by implication the global economy. The markets worldwide have recovered strongly in the aftermath of the 11 September atrocities. It appears that the shock is what the markets needed to form a bottom. Newsflow was already bad before the events and the terrorist attacks will certainly have panicked more sellers out of the market.
Many of the industries that needed to restructure have taken the opportunity to do so and the markets appear to be more concerned with recovery rather than a worsening of conditions. Investors are eager to react to good news of late, with bad news seemingly being absorbed without too much fuss.
Korea has been a significant beneficiary of all of this. Not only is the economy geared towards a global recovery but it also has the ability to generate growth internally. In Asia, it is one of the few markets able to offer such an opportunity and as such, foreign investors have been large buyers since the beginning of October. As is usual in a liquidity-driven rally, it has been the index heavyweights that have performed best.
Banks have been very strong performers: consolidation in the industry combined with continued provisioning, low interest rates and growing retail activity are all favourable factors. Brokerages have performed well as trading volumes by the retail investors have more than doubled since their lows prior to 11 September.
The DRAM stocks have performed strongly as memory prices on the spot market recovered in November and Samsung Electronics and Hynix both increased their contract prices in early December. There is likely to be an earlier equalisation of supply and demand than was previously expected.
The majority of net buying this year has been by foreign investors with the retail investors, although generating huge volumes, consistent net sellers for the majority of the rally. Domestic institutions have also been sellers demonstrating a preference for bonds for most of the year. We are beginning to see a reversal of this trend as the stock market moves higher and investors perceive the bottoming of the interest rate cycle. Final capitulation by the domestic investors will maintain the upward momentum of the market and broaden the rally to include some of the small and medium-sized companies that have lagged recently.
Generating internal growth.
Government able to pump-prime economy.
Bad news has been discounted.
Evidence of GDP growth slowing.
Recovery in US uncertain.
Exports are still contracting.
Launched November 2018
£15m group claim
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