Foreign buying drives Seoul, Taipei share rally but outlook murky
SEOUL, Sept 27
SEOUL, Sept 27 (Reuters) - Foreign investors have poured the most in six quarters into South Korean and Taiwanese stocks in the current quarter, driven by expectations for improved corporate earnings and the view that these countries are a safer bet among Asian emerging markets.
But the resulting rally in their stock markets may have run too far, with corporate earnings unlikely to improve fast enough to justify higher valuations because an anticipated pick-up in exports has yet to materialise, analysts said.
Overseas investors snapped up more than a net $14 billion in the two countries' stock markets combined from the end of June through Wednesday, a sharp reversal from a combined $8.6 billion of net selling in June alone, Thomson Reuters data shows.
This has lifted their share prices and currencies, with South Korean stocks up more than 20 percent in dollar terms from a low set in late June and Taiwan shares up almost 10 percent, data from index compiler FTSE shows.
"Countries with current account surpluses stood out to attract foreign investment and in addition there was growing perception that Korea's economic growth and corporate earnings have touched a bottom," said Bryan Song, head of Korea research at Bank of America Merrill Lynch.
"Based on historical records, we saw about a 20 percent gain for Korea over the next 12 months (in early September) but whether foreign buying will continue depends on earnings performance going forward," he added.
TEPID EXPORT GROWTH
With their sizeable current account surpluses and foreign reserves, South Korea and Taiwan emerged as safer places for investment when expectations that the U.S. Federal Reserve would start tapering its bond-buying stimulus programme sparked a selloff of emerging-market assets.
But tepid export growth suggests that earnings improvement will be slow for the countries' export-reliant companies.
South Korean exports grew 1.7 percent in January-August compared with the same period last year and are expected to post 2 percent growth in September, a Reuters poll shows, well below an average of 14 percent for the past 10 years.
And Taiwanese exports rose just 2.5 percent year-on-year in the first eight months of the year after a 2.3 percent drop for the whole of 2012. Government data shows export orders won in August posted just 0.5 percent growth.
"Even though (South Korea) continues to be treated differently from some of the other troubled emerging markets, sharp earnings growth would be required for foreign investment to keep up the momentum," said Park So-yeon, an analyst at Korea Investment & Securities in Seoul.
Korea Investment, one of South Korea's top brokerages, cut its earnings forecasts for nine consecutive months through August on a basket of more than 200 listed companies it tracks, its latest report shows.
Underscoring this, Reuters calculations show operating profits at the 501 South Korean companies with available data rose 12 percent in the June quarter from three months before but profits for those other than the top 10 slipped 1 percent.
"I'm maintaining a fairly neutral attitude toward the Taiwan stock market going forward; we don't expect a huge fall but nor do we see a big rise," said Kevin Lin, vice president at consultancy Caizi School in Taipei. (Additional reporting by Jungmin Jang in SEOUL, Michael Gold in TAIPEI; Editing by Chris Gallagher)
- Exclusive: Secret contract tied NSA and security industry pioneer |
- Housing, jobs data weaken, but overall economic picture still upbeat
- Putin critic Khodorkovsky in Germany after pardon |
- Target probe eyes overseas hackers; stolen cards for sale online
- Pizza outlet attacked as India, U.S. fail to cool diplomat row |