Country Report

Thrill ride: Korean macro and industry questions answered en route

by Paul Choi / Jan 22, 2018

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With geopolitical risks easing and the export-driven recovery spreading to capital spending and domestic demand, it’s time for Korea to experience the thrill of a lifetime. Attractive valuations are its key appeal: while 2017 was a year of positive earnings revision, 2018 will travel the PE-rerating road.

The most important macro questions Tackling seven critical macro questions, we focus on geopolitics, the current state of the economic cycle, government-initiated reforms and market liquidity. Kim Jong-un’s recently softened stance towards President Moon and South Korea has eased tensions. This will allow last year’s export-driven recovery to spread to domestic demand as the risk of newsflow impacting the market has dissipated. Additionally, excess liquidity will reward companies that are responding to reforms with improving corporate governance and payouts.

The most important industry questions Our sector analysts then paint a roadmap of the direction Korean industries are headed. They pose questions to address 17 areas that are on our radar: including fintech, memory prices, OLED, 5G rollout, online games, battery demand, steel & refining margins, shipbuilding and Middle East construction orders, auto & tyres, Chinese tourists and cosmetics channels.

A value haven Korea remains an outlier in the global arena. Despite possessing a robust and technologically-advanced economy, it remains one of most inexpensive stock markets in the world – a rare gem that trades below its historical-mean valuations in a high-asset-price world. We believe this is due to poor capital allocation, as evidenced in its low payout rate. However, chaebolution continues and changes are already in motion that will see Korea catching up with international peers and providing investors with healthy returns.