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Despite gains, Korean stocks still undervalued

Apr 29,2017
Korean stocks still appear undervalued despite a 9 percent gain in the benchmark index this year, according to market data and a local brokerage on Friday.

The Kospi closed at a near six-year high of 2,209.46 points on Thursday, supported by healthy earnings at Samsung Electronics and foreign inflows.

From Jan. 2 to Wednesday, the index gained 8.95 percent from the end of last year, but the gain lagged behind an average rise of 10.51 percent among the world’s 40 stock markets during the same period, Daishin Securities said in a report.

The Kospi ranked 14th among the 40 markets.

As of April 21, the Kospi’s 12-month price-to-earnings ratio is expected to be 9.1, compared with an average projected 12-month ratio of 11.9 among emerging markets, Daishin Securities said.

Some analysts suggested that investors may keep demanding a discount for purchasing Korean stocks due to continued perception of lax management by conglomerates and geopolitical risks surrounding North Korea, a factor known as the “Korea discount.”

Kang Hyung-cheol, an executive at NH Investment & Securities, said the “Korea discount” could be diluted if stock prices go up, but it will not be resolved.

The Kospi is likely to rise further because recent gains are supported by better-than-expected earnings by Korean firms, analysts said.

Lee Chang-mok, head of the research division at NH Investment & Securities, said earnings by Korean firms may be on a recovery track, thanks to a modest recovery in the global economy.


YONHAP