South Korean Economy Lagging Behind in Asia
Ben Luk from State Street Global Markets says that South Korean stocks are the most undervalued in Asia. A major contributing factor to this is a lagged performance that has seen the equity market in that country not compete with its peers. While there have been impressive gains in Japan and China in the last year. The same does not hold for the equity market in South Korea.
Behind on Numbers
The outlook on South Korea’s market performance this year is not pleasing. The equity market has not kept the pace when compared to neighboring countries in Asia. As of Monday this week, the Kospi registered just a 2.3% rise the entire year. Compare this to China’s Shanghai composite that so far is registering about 16.9% and Japan’s Nikkei 225 that is registering 17%.
According to Luk, the equity market in South Korea has potential but fails to realize it. He noted that there are a few aspects of the equity market in South Korea that make it prime for growth. What Luk recommends is a shift in focus from the effects of the trade war. Instead, he recommends a focus on trading in the equity market.
The Trade War between China and the US continues to have adverse effects on the world economy. Many analysts still have their heads buried deep in speculation on the same. However, the evidence that equity markets in Asia continue to grow is enough indication that a shift in focus is necessary.
Luk points out to the fact that there is no news on whether the phase one or two trade deals will take place. While market observers continue to monitor this, other economy news experts remain skeptical about whether this is possible. Recently, the US president threatened to slap China with more tariffs. This comes after the president accused Beijing of highhandedness.
Export Reliant Economies Worst Hit
The stalemate on the trade war, which has been ongoing for a year now, has led to an economy such as South Korea to take a hit. The South Korean economy is largely export-reliant and the imposition of tariffs and the barriers to trade have hit the country hard.
Luk also insists that the trade cycle could be bottoming out. He points to the fact that figures from many global manufacturing Purchasing Manager’s Index have been hitting high points. He warns however that the worst might not yet be over but encourages optimism that a rebound might shake up the markets positively.
Need for Reforms
Luk also noted the need for corporate governance reforms in the Asian country. He terms these reforms as catalysts and goes on to add that in recent times, the South Korean market has seen more dividend payouts. Moreover, he notes that good corporate management is driving these positive changes and the reforms need to entrench further.
He also acknowledged that while corporate governance reforms are ongoing, government reforms might take longer. This may eventually become a stumbling block for many firms in South Korea.