BlackRock Buys as Global Investors Overrun Seoul: Korea Markets

BlackRock Buys as Global Investors Overrun Seoul: Korea Markets

The record flood of overseas cash into South Korea’s stock market looks set to swell further judging from the diaries of Seoul executives. YK Kang, head of investor relations at Seoul Semiconductor Co. (046890), a maker of light-emitting diodes, has met with 35 foreign money managers this month, up from three in January, as the stock surged 81 percent this year. Meetings with stock pickers that used to last 20 minutes now take an hour, Kang says.“We can feel that the level of interest is different,” Kang said by phone from the city of Ansan, southwest of Seoul.

Foreign investors have boosted South Korean stock holdings for a record 41 straight days, lured by the nation’s current-account surplus, strengthening currency and fastest growth in almost two years. Samsung Securities Co. says inflows will accelerate as shares are valued at half the level of global peers even after a 14 percent rally in the Kospi index since June. BlackRock Inc. (BLK), the world’s largest money manager, has been buying on expectations profit growth will quicken.

Stocks are “cheap and attractive compared to the region,” said Andrew Swan, the Hong Kong-based head of Asian equities at BlackRock, which oversees $3.8 trillion. “We have increased our exposure to Korea and are now overweight.”

2007 High

Foreign ownership of Kospi index companies has climbed to more than 35 percent of outstanding shares, the highest level since July 2007, according to data from the Financial Supervisory Service. Samsung Electronics Co. (005930), the biggest maker of smartphones, and SK Hynix Inc. (000660), the second-largest computer-memory chipmaker, attracted the most inflows among Kospi companies since the gauge began rallying from this year’s low on June 25, data compiled by Bloomberg show.

Asia’s fourth-largest economy expanded 3.3 percent in the three months ended September from a year earlier, the quickest pace since the fourth quarter of 2011 and exceeding the 3.1 percent median estimate in a Bloomberg survey, government data showed on Oct. 25.

The Bank of Korea said this month the nation will report a current-account surplus of $63 billion for 2013, higher than its July estimate of $53 billion. The won has outperformed all of its Asian peers during the past six months with a 4.7 percent gain against the dollar, giving foreign shareholders increased returns from currency translation.

Export Slump

“Foreigners seem to have belief that the Korean won will strengthen further,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., which oversees about $6.4 billion, said by phone on Oct. 18.

The Kospi fell 0.9 percent last week and reached a two-year high on Oct. 22. The won slipped 0.1 percent to 1,062.06 per dollar amid speculation authorities intervened to curb gains. Yields on the nation’s 10-year notes dropped nine basis points to 3.38 percent.

Currency strength makes South Korean products more expensive for overseas buyers. Exports (KOEXTOTY) dropped 1.5 percent in September, following a 7.6 percent increase the previous month, government figures show. Earnings at the 39 Kospi companies tracked by Bloomberg that reported results so far this quarter trailed analyst estimates by 3.3 percent.

Selling by local investors may curb the Kospi’s rally even as foreign investors pile in, according to Kwon Hyuk Sang, the chief investment officer at Hanwha Asset Management Co. Domestic institutions sold a net $6.1 billion of Kospi shares since June 25 while individual investors pulled out $7 billion, according to exchange data compiled by Bloomberg.

Relative Value

“For the market to really boom and turn to the upside, we need both local institutional investors and global investors to buy,” Kwon said. “It doesn’t work out when it’s only one of the groups.”

South Korean shares will get support from “cheap” valuations and an improving global economic expansion through the rest of the year, BlackRock’s Swan said. Export growth will probably rebound to a 3 percent pace in October, according to the median economist estimate in a Bloomberg News survey.

The Kospi trades at 1.1 times net assets, a 48 percent discount versus the MSCI All-Country World Index, which has a multiple of 2.1. That compares with an average gap of 35 percent during the past five years, data compiled by Bloomberg show.

SK Hynix trades for 2 times net assets, versus 3.4 times for global peers, the data show. International investors have bought a net $1.8 billion of the shares since June 25.

Earnings Outlook

“Foreign investors give us the impression that they have more belief in our business strategies when we go overseas on non-deal roadshows nowadays,” James Kim, vice president of investor relations at SK Hynix, said by phone from Seoul on Oct. 18. SK Hynix’s operating profit will probably climb 24 percent next year, Shinhan Investment Corp. said in an Oct. 10 report.

Seoul Semiconductor may boost earnings by 53 percent next year, according to the average of 13 analyst estimates compiled by Bloomberg, versus the 36 percent median estimated growth for global peers. The company is scheduled to report quarterly results on Nov. 5.

“We’re positive on the outlook of further foreign inflows as corporate earnings, low valuations and the stability of the currency will factor in,” You Seung Min, a strategist at Samsung Securities, the nation’s biggest brokerage, said by phone from Seoul on Oct. 22. “This means there is more room for foreigners to buy.”

To contact the reporter on this story: Sharon Cho in Seoul at ccho28@bloomberg.net