Overweight Korea; aside from China,
Asia’s best value market
 Focus on value stocks: HSBC forecasts
GDP growth to recover stronger than the
market expects; value in domestic plays
 Cyclicals make up four of our ten
preferred stocks
We are overweight Korea as we believe it is the best value
market in Asia, aside from China. The KOSPI is trading at
an 11.5x PE and a 1.2x PB, some 31% and 38% off peak
levels, respectively.
Domestic recovery ahead. HSBC sees 3.8% GDP growth this
year, above the consensus of 3.1%, as an expected China
recovery spills over into Korean exports and employment. This
could jumpstart Korea’s currently moribund domestic demand.
Earnings growth forecasts looks realistic. One major issue
for the Korean market in 2012 was that companies were
unable to meet overly optimistic earnings forecasts.
Consensus earnings growth has since come down to 19% for
2013, which we argue is achievable.
Buy domestic value plays. With domestic demand conditions
improving from low levels, we believe it is time to switch into
domestic-oriented stocks with attractive valuations.
Favourable fund flows. According to our Regional Strategy
team, mutual funds are currently neutral on Korea and
maximum underweight Asia Tech stocks. Mutual funds are
also underweight Consumer Discretionary and appear to be
rotating into Cyclicals – the overweight in regional
Industrials is now at a historical high. This supports fund
flow into Korean Tech and domestic plays.
Ten OW-rated Korea stocks to own, with PE multiples
below 12x and PB multiples below 1.2x. Shinhan Financial
Group (055550 KS), POSCO (005490 KS), Daelim Industrial
(000210 KS), LG Electronics (066570 KS), Samsung SDI
(006400 KS), Doosan (000150 KS), E-Mart (139480 KS),
Samsung Electronics (005930 KS) – an Asia Super Ten
portfolio stock, DSME (042660 KS) and Hyundai Department
Store (069960 KS) – an Asia Super Ten portfolio stock.