Friday July 26, 6:31 PM
UPDATE: FRANKLIN TEMPLETON FUND - KOREA FUND
By Vasu Menon, Chief Editorial finatiQ
Ong Tek Khoan, Executive Vice President at Templeton Asset Management, shared his views recently about the South Korean economy and stock market. Incidentally, South Korea has consistently ranked as the top pick of many fund manager in recent polls.
Tek Khoan is a member of the emerging markets team at Templeton, covering Korea.
The Franklin Templeton Fund - Korea Fund has done well, returning 16.3 per cent in the last six months to July 12 and 45.5 per cent in the last one year. The Fund which comprised 41 stocks as at June 30, was valued at a historical price-to-earnings ratio of only 12.9 times and price-to-book of 0.9 times.
He highlighted the following attractive features about South Korea's macro fundamentals:
1. The economy is expected to post growth of about 6 per cent this year, making it one of the fastest growing economies in the region.
2. Despite the strong growth, inflation remains in check at less than 3 per cent.
3. Unlike its Asian neighbours, South Korea's unemployment rate has been on the decline and is currently less than 3 per cent.
4. Interest rates in South Korea, at about 5 per cent, are at a five year low.
5. Foreign exchange reserves stands at about US$106 billion, the fifth largest in the world.
6. The country has a sizeable trade surplus, again ranked one of the largest in the world.
7. The leading composite index, which is also a good leading indicator of the stock market, is on an uptrend, which augurs well for Korean stocks.
8. The South Korean currency is undervalued based on purchasing power parity.
9. The recent strength of the Won is not a major source of concern as the economy tends to be more sensitive to global economic growth compared with currency movements. Also, the Japanese currency has strengthened against the greenback and that means Korean industries have not lost out on export competitiveness compared with their Japanese counterparts.
10. On a 12-month forward price-to-earnings ratio, the Korean market is trading at multiple of only around 8.3 times as at July 11. This compares with 18.1 times for the US bourse and 16.8 times for the Singapore market.
11. In terms of price-to-book, the Korean bourse also compares favourably at 1.5 times as at May 31, versus 3.2 times for the US, 2.1 times for the UK and 1.6 times for Singapore.
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