SOUTH Korea's won, the world's worst performing major currency this year, is undervalued by about 8 percent and the nation's stocks should outperform, said Mark Mobius, who manages emerging-market shares at Templeton Asset Management Ltd.
"Korean stocks are cheaper than the average emerging markets," Mobius said at briefing in Seoul last Friday. "The currency is somewhat undervalued."
The benchmark Kospi index fell 3.9 percent this year to trade at 13 times estimated earnings, compared with a multiple of 15 for the MSCI Asia Pacific Index. South Korea's won has dropped 12 percent in 2008 while five-year government bond yields have fallen almost half a percentage point. The central bank last week said it plans to lower its growth forecast and signaled it wants a weaker currency to help boost exports, Bloomberg News reported.
President Lee Myung-bak, who won a landslide victory on December 19, wants to boost economic growth to 7 percent and double per capita income to US$40,000 by 2017. He pledged in February to cut taxes and speed up deregulation in South Korea, which was forced to seek a bailout from the International Monetary Fund in the 1997-98 Asian financial crisis.
Bigger trade gap
"Since 1997, Korea has actually outperformed emerging markets in general and I think that is going to continue, especially as a result of the kind of reforms that the government is instituting now," Mobius said.
Templeton prefers materials, chemicals and capital goods-related stocks in South Korea, and likes GS Holdings Corp, which operates unlisted GS Caltex, the nation's second-largest oil refiner, Mobius said.
The won is set for its biggest weekly fall in two months after Bank of Korea Governor Lee Seong Tae last week said the country's trade deficit will widen. Korean bonds are headed for their biggest fall in six weeks after the central bank said record oil prices and a weakening won are adding to inflation.
"Economic growth is slowing significantly," Lee said. "It seems climbing oil, food and other commodity prices, coupled with a US economic slowdown, are affecting the domestic economy. The trend of slowing growth would continue."