Andrea mcnee, investment director at britannic, says korea's ability to rebound through reform and strong exporting will see it thrive
Britannic Asset Management is remaining overweight in Korea in the wake of the market's 50% returns in 2001.
Korea, the world's best-performing market last year, retains its attractions for Andrea McNee, investment director and member of the Asian equities desk which runs the Pacific Growth fund. She said: 'On an absolute valuation matrix, it is still very cheap.'
While Britannic has trimmed its overweight position, McNee is positive on the market as both a play on ongoing corporate reform and world market recovery. The banking sector has had excellent outperformance on the back of structural change and Britannic believes its overall impact is becoming fully valued by the market.
The other great theme in Korea is its technology sector, according to McNee, which also had a strong run last year.
She added: 'It has got another 50% upside. The main issue is whether that will happen this year or in 2003.'
McNee also said that since the Asian crisis, the government has acted swiftly to ring-fence poor loans made by the banking sector to back up the chaebols, large traditional Korean conglomerates. As a result, new management is in place without the debt burden and problems of the past, able to make loans to the Korean consumer.
McNee believes reform on this scale was possible because Korea did not have the wealth to avoid reform, unlike Japan.
She added: 'It was a real sense of crisis, with the IMF called in.'
Furthermore, Korea's economy is far more dependent on exports than Japan and has a greater capacity to export its way out of trouble, according to Britannic.
The Pacific Growth fund is slightly overweight in Singapore, neutral on Taiwan, Malaysia and Thailand, and underweight Australia, Hong Kong, Indonesia and the Philippines.
McNee believes global outsourcing is going to be crucial in driving Asia's growth in the future, particularly in China.
Britannic sees the overall market as cheap. Last year, Asia was on a price to book ratio of one times and that has risen to 1.6 times, still cheap on an historic basis.
In many ways, the region has already gone through much of the restructuring pain the US is now having to undergo, according to McNee.
As a result of the Asia crisis, managements have de-geared balance sheets and are now generating free cashflows. Return on equity is of comparable levels to that available in the US, at around 10%, according to Britannic, but is much cheaper on a price-to-book basis.
McNee said: 'That is starting to be recognised by global asset allocators.' A factor which could help bring liquidity to the region.
Interest rates are low and look set to remain so, giving a further support to the markets, because domestic investors will not be rewarded for leaving money on deposit, especially as many equities yield more than cash returns.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension