News that Donald Trump is prepared to meet Kim Jong-Un for what will undoubtedly be one of the most hilarious photo ops in political history was enough to help Asian shares close the week on a high note.
Here’s how South Korea stocks fared on the week (they extended Friday gains on the Trump headline, but by the end of the session, whatever extra boost shares received from the announcement had generally faded):
Huh Nam Kwon, CEO of Seoul-based Shinyoung Asset Management thinks the Trump / Kim meeting is a game changer for South Korean stocks. “Trump’s response is a huge event” he said on Friday, adding that South Korean shares are 30% undervalued versus regional peers thanks to the Kim threat and thus the Kospi “could rise above 3,100 if Kim Jong Un takes steps to discard his nuclear weapons program.”
Here’s a look at relative valuation of Korean equities:
(Goldman)
Bloomberg’s Kyoungwha Kim generally agrees, writing the following on Friday:
The Kospi index can rally further to narrow the so-called Korea discount if Friday’s detente does lead to a reduction in geopolitical tensions. The Kospi‘s P/E ratio has been near record lows relative to the MSCI EM Index for years as local equities were significantly discounted because of the escalating threat of North Korean missiles.
South Korean builders rose handily on what at least one analyst says are “expectations that their earnings will grow if inter-Korean businesses resume”:
So you can draw your own conclusions here. It’s far too early to say what ultimately will come out of the Trump / Kim pow wow.
For now, the news seems to have gone at least some ways towards offsetting the trade war threat, although a couple of folks are out this morning suggesting that the follow-through in Asia and Europe was less than inspiring.
