Amundi, Europe’s largest asset manager, is optimistic about South Korean stocks despite the upcoming lift of a short-selling ban next week. The firm advises short sellers to be cautious, as targeting South Korean stocks may prove risky.
Warning for Short Sellers
Vincent Mortier, Amundi’s group chief investment officer, cautioned that short selling could backfire. Speaking in an interview on Tuesday in Hong Kong, Mortier stated, “It’ll be very dangerous for short sellers to target South Korea.” He explained that the risks associated with political and economic uncertainty have already been priced in, meaning investors could be surprised by positive developments.
Positive Outlook for South Korean Equities
Mortier predicts that South Korean stocks will continue to rise after the ban on short selling is lifted on March 31. He sees this as a step towards market normalization and believes it could help South Korea achieve developed market status from MSCI Inc. He also pointed to the government’s efforts to boost stock valuations, describing the situation as an “interesting opportunity” for mid- and long-term investors.
Market Revival After a Tough 2024
South Korean stocks are showing signs of recovery after a challenging 2024, when political turmoil, including the president’s impeachment, negatively impacted the market. The Kospi Index has risen more than 9% this year, outperforming the MSCI Asia Pacific Index. Major companies like Samsung Electronics Co. and SK Hynix Inc. have drawn investors back with attractive valuations.
Government Initiatives and Foreign Interest
Mortier, whose firm manages $2.4 trillion in assets, believes the South Korean market is undervalued and underrepresented by foreign investors. He anticipates that the government’s “value-up” program will help push stocks in a direction similar to Japan, where corporate reforms have driven benchmarks to new heights.
Some analysts worry that the revival of short selling could introduce volatility, but others argue it could enhance market liquidity by attracting hedge funds, which use short-selling strategies to manage risks. In February, Pictet Asset Management announced plans to buy more stocks once the short-selling ban is lifted, allowing it to hedge its long equity positions.
MSCI Upgrade on the Horizon
South Korea has long aimed to gain MSCI’s upgrade from emerging market to developed market status. The short-selling ban, in place since November 2023, has been seen as a barrier. However, Mortier believes that the upgrade is “a question of time” and that such a change would draw in more investment and prompt a re-evaluation of the market.
The Kospi is currently trading at just nine times its forward earnings estimates, significantly lower than the MSCI Asia Pacific Index (14 times) and Japan’s Topix Index.
Foreign Investment Declines
Persistent foreign selling since mid-2024 has reduced foreign holdings in South Korean stocks. As of February, foreigners held 31.6% of the Kospi, down from 35.6% in July, according to data from the Korea Financial Investment Association.
South Korea’s Strong Performance in Asia
Among Asian markets, the Kospi’s performance this year ranks second only to Hong Kong stocks, which are benefiting from China’s technological advancements.
While there is much focus on China, Mortier also highlighted the importance of innovation and investment from South Korean companies. He particularly favors traditional automakers and financial sectors, which are expected to benefit from the “value-up” initiative.
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