Listen, if you’re in the mood to “top up some high conviction positions” in EM, M&G Investments’ director Jeik Sohn thinks this might be your chance.
For what it’s worth, Sohn is responsible for M&G’s global EM equity portfolio which means he’s managing something like $2.8 billion in assets.
When it comes to South Korean shares, he thinks the so-called “Korea discount” (which is basically just “Kim risk”) is offset by fundamentals. Because as Bloomberg notes, the “Kospi’s 2017 PE is 9.9x versus ~14X for MXAPJ, while estimated earnings growth for the Kospi is 55% y/y for 2017.”
Here’s a visual on that from Goldman:
“The cheapest market has the fastest earnings growth,” Sohn says, summing up.
So that’s all fine and good, but the thing is (and we’ve been warning about this for months), you’ve gotta wonder about an equity market that’s seen an avalanche of YTD inflows and until recently was sitting near record highs when, at least by proximity, the country it represents is the most dangerous place on earth (hyperbolic, but you get the idea).
And indeed, you’d be remiss not to note that in August, when EM equities as a group were busy notching their eighth consecutive month of gains (the best streak since 2004), the Kospi fell for the first month in 9:
That’s a little context to set up this visual:
So Kospi vol. spiked the most since August 11 on Monday, rising some 14%.
Again, that’s the biggest spike since the “fallout” (pun fully intended) from “fire and fury” and it suggests that whatever you want to say about valuations, this is a dangerous trade.
But since when did this market care about nuclear war?
Maybe since today.