* Moon's presidency a catalyst for stock gains
* Investors expect earnings, cheap valuations driving more
* Trade growth, chaebol reform offset N. Korea, US, China
* Investors say Trump unlikely to scrap free-trade agreement
By Nichola Saminather
SINGAPORE, May 11 Defying a toxic mix of nuclear
and political tensions, South Korean stocks - Asia's cheapest -
have scored record-highs in the past week. Now, with the
election of liberal moderate Moon Jae-in as the nation's
president, bets are that Korean equities will run up further
The benchmark KOSPI has jumped 13 percent this year,
no mean feat considering a raft of risks, including months of
leadership vacuum, North Korea's nuclear ambitions, China's
boycott of South Korean goods and tourism, and U.S. President
Donald Trump's threat to potentially pull out of a free-trade
South Korean stocks have enjoyed $6.93 billion of inflows
this year up until May 10, second only to Taiwan, according to
Thomson Reuters data. That compares with about $10.5 billion for
the whole of 2016.
While strong earnings in the country's lynchpin technology
sector, have helped to spark investor demand, funds are now
counting on Moon's presidency to soothe some of the geopolitical
tensions and provide a fresh catalyst for gains.
Moon has promised to negotiate with both China, South
Korea's biggest trading partner, and the U.S. to ease tensions
over the deployment of the U.S. THAAD anti-missile system; push
for reforms of the family-run conglomerates, known as chaebols;
and introduce a fiscal stimulus package to breathe life into the
“The election result is the spur to both hopes for
reconciliation with China... and corporate reform of the
chaebols," said Hugh Young, managing director of Aberdeen Asset
Management Asia in Singapore.
"So, provided the hope morphs into reality, the market can
A further important driver for the market will be an
extended phase of earnings growth at South Korea's biggest
companies, thanks to a revival in global trade and strong demand
for hi-tech memory chips. Exports, for instance, surged for a
sixth straight month in April, with growth hitting a six-year
Earnings estimates for South Korean companies for fiscal
2017 have risen 8.6 percent over the past eight weeks, the
biggest upgrade among major Asian markets, according to Nomura.
Investors are also downplaying the threat of U.S.
protectionism on South Korean exports.
Sean Taylor, Asia Pacific chief investment officer at
Deutsche Asset Management, who remains overweight Korean stocks,
expects Trump to renegotiate the free trade agreement between
the two countries, rather than scrap it altogether.
Taylor sees limited impact on South Korean companies.
"A lot of it is just Trump talking. We've seen that it's
very hard for him to pass anything," he said. "The U.S. really
needs panels and DRAM and NAND (memory chips) and it doesn't
have the volume itself."
Another draw for investors in Korean stocks is their cheap
When the KOSPI hit its previous record in April 2011, it was
trading at 1.4 times forward book value. Although it has
surpassed that high, its current price-to-book ratio is only
South Korean stocks' valuation also contrasts with the most
expensive markets, India and Philippines, at 2.6 and 2 times
book value, respectively.
Korea has historically traded at a discount to other Asian
markets due to the dominance of chaebols, or family-run
conglomerates, which have been stubbornly resistant to minority
investors' calls for reforms.
But some progress on changes makes this lower valuation more
attractive now, particularly with Moon pledging to push for
"The trends are definitely towards reform and change," said
Mark Mobius, executive chairman of Templeton Emerging Markets
"I believe the chaebols in three years will move towards
more and more professional management who heed the interests of
all shareholders, not only the family who founded the company,"
"Those families will gradually become passive shareholders
with less and less direct managerial control."
(Reporting By Nichola Saminather; Additional reporting by
Gaurav Dogra and Patturaja Murugaboopathy; Editing by Shri