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Emerging Markets Guru Mark Mobius - Korean Uncertainties
Posted by: Canadian Value (IP Logged)
Date: April 17, 2013 03:57PM

The most recent memo from global investor Mark Mobius:

The uncertainties and risks on the Korean peninsula have been with us for a long time, dating back to the end of the Korean War in 1953. The threat of invasion from North Korea and various actions it has instigated against South Korea over the years have been ongoing. Therefore, most foreign investors are well aware of the situation and therefore we don’t believe we’ll see any large scale investor withdrawal from South Korea at this stage, unless things change dramatically for the worse. Certainly, any increase in tensions on the Korean peninsula could result in some capital moving from South Korea into other markets in Asia, such as China, Japan and Hong Kong. However, we do not see that happening broadly at this stage.



Still not all that much is known about Kim Jong-un, the young man who took on the role of North Korea’s dynastic head. This does create some additional uncertainty and there is a risk that the regime will undertake some type of military action, launching missiles or nuclear tests, in an effort by the new leadership to try and show the outside world that there is no regime change, no plan for reunification with the south, or internal strife within the country.

There’s no question that the U.S. has taken the most recent threats by North Korea seriously and we will keep a close eye on the situation. However, at this point at least, we aren’t seeing a market panic related to the tensions, but rather, some general nervousness tied to uncertainty.

Risks and Reasons to be Optimistic
As we are long-time emerging markets investors, tensions on the Korean peninsula are not news to us. During crisis periods, market weakness can be viewed as potential buying opportunities, which could be the case in South Korea as we expect there could be periods of volatility.

South Korea’s market also bears some risk from further weakness in the Japanese yen. Yen fluctuations can impact South Korea more than some other economies in the region because South Korea competes directly with Japan in the manufacture and export of value-added, high-technology products and machinery.

Aside from these risks, we believe there are reasons to be optimistic about South Korea’s long-term investment potential. The government recently announced several policy measures to boost the domestic economy, and we think these measures could potentially kick-start growth and have a positive impact on the South Korean market once tensions ease. Right now we generally view valuations in Korea as attractive and corporate earnings appear resilient—just like the Korean people.

Continue reading here.


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