LEADING FUND MANAGER SHARES VIEWS ON KOREA & THAILAND

OCBC Asset Management's Savers Korea Fund and Savers Thailand Fund have done exceptionally well. They have outperformed their peers and were ranked amongst the top 20 performers in the first half of this year. The Savers Thailand Fund was 53 per cent higher in the first half while the Savers Korea Fund was up 13 per cent. OCBC Asset Management shares its views on South Korea and Thailand.

Korea

After hitting a high of 943 in April, the KOPSI trended down for most part of second quarter, registering a loss of 17.1 per cent.

Trading volume slumped in the second quarter as investors turned cautious due to concerns about the sustainability of global economic recovery and the discovery of accounting irregularities in the US.

The World Cup fever in Korea also contributed to the sharply slower trading activity.

The strength of the won against the US dollar led to fears about erosion in export competitiveness and contributed to the sell-off on the Korean bourse.

The Bank of Korea's move to raise interest rates by 25 basis points in May, to cool the domestic economy, also spooked investors.

But by June, foreign investors had turned net buyers of Korean stocks, but by a small amount.

Outlook

Cyclically, Korea remains in a bright spot. A recovery in exports is underway to replace domestic consumption as the engine of growth.

Exports grew 9.2 per cent and 7.8 per cent in April and May respectively, ending 13 consecutive months of contraction. This is likely to continue as a global recovery kicks in.

Consumption spending should also be healthy due to low unemployment (which is returning to pre-crisis levels), low interest rates (currently half the pre-crisis levels) and strong expansion of consumer credit.

Investments are expected to pick-up in the second half of this year, spurred by low inventory levels and strong manufacturing activity.

Government policies are also expected to remain easy and accommodative as presidential elections are due later this year.

Although the Korean bourse will be volatile in the short-term, we are sanguine about the market's prospects as economic recovery continues on the back of export growth, augmented by the strong corporate earnings momentum, attractive valuations, and benign domestic liquidity.

We continue to believe that Korea deserves a gradual re-rating, driven by rising return on equity, improved balance sheets and better corporate governance.

Thailand

After surging by nearly 13 per cent in May, the Thai stock market ended 4 per cent higher in the second quarter.

The strong buying interest in May was triggered by better-than-expected first quarter earnings.

Evidence of strong housing and vehicle sales also boosted optimism towards sectors such as property, finance and building materials.

However, towards the end of the second quarter, the Bank of Thailand announced that it will issue bonds to refinance losses incurred by FIDF during the financial crisis.

Concerns over the impact of these bonds on market liquidity, together with the sharp weakness in US equities markets led to profit taking by investors.

On the economic front, GDP for the first quarter rose 3.9 per cent, due to strong domestic consumption and export recovery.

Outlook

Despite uncertainties about the outlook for the global equity markets, the Thai stock market remains one of the best performers this year due to its cheap valuations, the strong domestic economy and stable politics.

While these factors will continue to underpin the market's strong performance, concerns such as the impact of a large scale privatisation of state-owned enterprises and recapitalisation of banks may continue to cap stock market returns.

The release of second quarter corporate earnings due in August may surprise investors on the upside.