The escalating war of words between President Donald Trump and North Korea’s Kim Jong-un has spurred demand for haven assets globally. In Seoul, bargain-seeking investors have turned bullish on consumer stocks.
Eight of top 10 gainers on the Kospi 200 Index since Trump’s “fire and fury” comment on Aug. 8 include the cosmetics maker Cosmax Inc., which soared 11.5 percent over the next three days, Hansae Co., a garments producer that rose 6.7 percent, and furniture maker Hyundai Livart Co., which rallied 5.1 percent. The index itself slid 3.4 percent.
While South Korean stocks suffered their worst week since February 2016 as Trump dialed up his warning to North Korea on threats to U.S. allies, investors including Shinyoung Asset Management and Korea Investment Management said the sell off is an opportunity to snap up consumer companies as President Moon Jae-in takes steps to stoke demand.
“The North Korean issue is a meaningless assumption, a short-term issue to be resolved,” said Jung Sang Jin, a fund manager at Korea Investment. “What’s really important is how the government’s policies impacts the market in the long run. The policies are aimed at stimulating consumer spending.”
The MSCI Korea Consumer Discretionary Index of 18 companies is at a three-month low even as consumer confidence remains buoyant amid Moon’s pledge to boost spending, exposing a gap between the economy and investor sentiment on the sector. Consumption improved in June and the momentum may continue in the second half, according to the Finance Ministry.
“We’re buying some consumer stocks that have been oversold,” Huh Nam-Kwon, chief executive officer at Shinyoung Asset Management, said in a phone interview without naming any companies. “The government is focusing on domestic consumption.”
Consumer stocks are also attracting investors rotating out of Korean technology shares, according to Korea Investment.
Samsung Electronics Co. is down 7.4 percent so far this month after rallying to a record in July, while SK Hynix has slumped 16 percent from a 16-year high reached last month. Global funds sold a net 848 billion won of Samsung shares in the three days through Friday, the most on the Kospi Index, and pulled a net 219 billion won from SK Hynix.
For stock pickers, South Korean equities are still cheap, Shinyoung’s Huh said.
The Kospi trades at 9.8 times of one-year forward earnings, compared with 14 times for the MSCI Asia Pacific Index. Per share earnings of the gauge’s members are projected to jump 77 percent over the next year, according to Bloomberg data.
“South Korean equities fell not because they are expensive, but because of country risk,” said Huh, a 30-year veteran of the nation’s equities. “I’ve seen people betting against country risk always becoming winners in the market.”
— With assistance by Kyoungwha Kim