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 discount, many commentators have aimed squarely at the nation’s poor corporate governance.
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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