Mobius Says Korean Stocks Will Outperform, Won Cheap (Update4)
By Chan Tien Hin and Kevin Cho
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May 9 (Bloomberg) -- 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 today. ``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 yesterday said it plans to lower its growth forecast and signaled it wants a weaker currency to help boost exports.
President Lee Myung Bak, who won a landslide victory on Dec. 19, wants to boost economic growth to 7 percent and double per capita income to $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.
``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.
Bonds Decline
The won is set for its biggest weekly decline in two months after Bank of Korea Governor Lee Seong Tae yesterday said the country's trade deficit will widen. Korean bonds are headed for their biggest decline in six weeks as investors stepped up sales after the central bank said record oil prices and a weakening currency are adding to inflation.
``Economic growth seems to be slowing significantly,'' Lee said yesterday at a media conference in Seoul. ``It seems rising oil, food and other commodity prices, coupled with a U.S. economic slowdown, are gradually affecting the domestic economy. The trend of slowing growth would continue.''
The benchmark five-year yield has dropped to 5.29 percent from 5.78 percent at the start of the year on concern economic growth will slow. Bank of Korea policy makers left the nation's interest rate at 5 percent yesterday.
Market ``Shock''
``The market is still in shock, digesting the signal from the governor yesterday that rate cuts won't come anytime soon,'' said Kong Dong Rak, a fixed income strategist with SK Securities Co. in Seoul. ``Those who aggressively bet on a cut are rushing to dump their holdings.''
South Korea's producer-price inflation accelerated 9.7 percent in April from a year ago, the fastest pace in more than nine years, because of rising raw-material costs, the Bank of Korea said today.
Separately, Mobius said the gap between prices of Chinese shares listed in Hong Kong and on the mainland will narrow. Yesterday he said in a Bloomberg Television interview in Seoul that he plans to invest about 20 percent of his fund's emerging- markets assets in the Middle East, North Africa and Central Asia in the next three to five years, from about 2 percent now.
Mobius's $394 million Templeton Emerging Markets Fund, introduced in 1987, gained 23 percent in the 12 months through yesterday, compared with a 19 percent advance by the MSCI Emerging Markets Index.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net; Kevin Cho in Seoul at kcho2@bloomberg.net.
Last Updated: May 9, 2008 04:34 EDT |
