Discounted Growth on Korea’s Horizon


Watch the video with Andrew Stotz or read a summary of the country profile on Korea.

Four Pillars of GDP: Driven by private consumption

Overall, the GDP growth in Korea is relatively slow. The economy is primarily driven by private consumption, but the slow down in exports has resulted in a negative contribution. Investments now only contribute 0.24, compared to 1.31 in the second quarter of 2016.

Korean Discount

Like years past, the infamous “Korea discount” remains a fact of life. The nation’s stock market, the KOSPI, is the cheapest in Asia and trades below book value. While no one knows for certain why Korean stocks are perennially on discoun

t, many commentators have aimed squarely at the nation’s poor corporate governance.

This fund run by a SAC Capital alum bought restaurant stocks amid the pandemic

restaurantPrentice Capital Management was up 6.6% for the first four months of the year, compared to the S&P 500's 9.3% decline and the Russell 2000's 21.1% decline. The HFRX Equity Hedge Index was down 9.4% for the quarter. Q1 2020 hedge fund letters, conferences and more Gross and net exposures In his first-quarter letter to Read More

2017’s expected price-to-earnings of 9.7x is lowest in Asia as well. And with a 13% expected earnings growth rate for 2017 the valuation looks attractive.

A. Stotz Four Elements: Korea’s rank relative to Asia

Overall Korea is the most attractive stock market in Asia considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.

Fundamentals: Korea has a weak return-on-equity—below 10%.

Valuation: Currently, the KOSPI trades below the expected book value for 2017, and the expected PE is below 10x.

Momentum: The Korean market is cheaply priced and offers strong earnings momentum.

Risk: Korea’s market has a relatively high beta to Asia ex-Japan and offers moderately high volatility.

Strong performance in Materials and Consumer Discretionary

Top 3 largest sectors: Information Technology: 31% of the market. Consumer Discretionary: 14% of the market. Industrials: 13% of the market.

Best sector & stock: Energy +5.2% & S-Oil Corp. +13.1%

Worst sector & stock: Health Care, -22.2% & Hanmi Science, -54.8%

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

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Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.