Date
20 October 2017
Last week's ouster of Park Geun-hye as president could trigger reforms and lead to a revaluation of South Korea stocks. Photo: Reuters
Last week's ouster of Park Geun-hye as president could trigger reforms and lead to a revaluation of South Korea stocks. Photo: Reuters

South Korea stocks may offer deep value amid political turmoil

South Korea’s Constitutional Court has unanimously upheld the legislature’s impeachment of Park Geun-hye as president, making her the first democratically elected leader in the country to be stripped of her powers.

The current political uncertainty could open up interesting investment opportunities in the country, which has the 11th largest economy and the 10th biggest stock market globally.

Investors can buy into the market through MSCI-based funds. For those who just want South Korea exposure, iShares MSCI South Korea index fund (EWY) offers a highly liquid investment tool.

Samsung has a weighting of about 22 percent in this index fund. Technology, finance and discretionary consumption sectors together make up 70 percent of the ETF’s market capitalization.

With a book value ratio of one, EWY is 50 percent cheaper than the MSCI emerging market index. EWY also has a lower price earnings ratio of 13 times, against 16 times of the latter.

While the political turmoil could put pressure on market valuations, it could also trigger reforms and lead to a revaluation of the country’s stocks.

For investors who are looking for deep value, like me, they can consider Korea Electric Power Corp (KEPCO), which trades at 0.4 times book value and a price earnings multiple of just four times, both way cheaper than the industry average.

Being majority owned by the government, KEPCO is subject to much policy influence.

But state backing also means it can access cheap funding to expand overseas. KEPCO is currently involved in 36 projects in 24 countries.

The full article appeared in Chinese in the Hong Kong Economic Journal on March 14

Translation by Raymond Tsoi

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Columnist at the Hong Kong Economic Journal

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