India and South Korea stocks may rally more than investors expect this year as investor concerns on the currency and current account problems subside, say Fortis Investments Management.
A strengthening rupee may lure fund inflows, while government initiatives to boost the economy in an election year will help India rebound faster than its peers, said Fortis’s Simon Godfrey said. South Korea’s exports may recover as the global economy picks up, he added.
“The worries on the currencies have stabilized in both countries,” said Godfrey, who helps oversee the equivalent of $264 billion as a senior investment specialist at Fortis Investments in Hong Kong. “Both of them are pretty under- owned.”
Emerging markets were hit harder than their developed peers last year as the global financial crisis and economic recession hurt demand for riskier assets. The MSCI Emerging Markets Index tumbled by a record 54 per cent last year, more than the 42 per cent drop in the MSCI World Index.
Indian government has announced two fiscal stimulus packages that include tax cuts, the injection of capital into banks, and allowing overseas investors to double purchases of debt. These measures and domestic demand will prop up the economy, said Godfrey, who recommends investors hold materials and industrials, health-care and bank stocks.
Worst performers
The rupee declined 19 per cent in 2008 while the South Korean won fell 26 per cent, the two worst performers among 10 currencies in Asia excluding Japan tracked by Bloomberg.
Investors fled South Korea last year as the country faced an increasing risk of an economic slump after factory production, exports and domestic demand weaken. The economy shrank a larger- than-expected 5.6 per cent last quarter, the biggest contraction since the Asian financial crisis a decade ago.
“Korea’s currency has to hold up and the situation with external debt has to be clarified,” Godfrey said. “But as a very cyclical country, if there is good news, and China imports pick up again, then Korea could be a surprise.”
Credit Suisse Group analysts Sakthi Siva and Kin Nang Chik reiterated an overweight call on South Korean stocks in a report on Thursday, saying the market is “the most under-owned” in emerging Asia and that the nation’s equities have historically performed best as global economic growth bottoms.
