Korea has been one of the more resilient Asian markets this year. But fundamental headwinds lurk beneath the surface. Actively managed KF doesn't offer as much upside potential here.
The closed-end Korea Fund has benefited from a narrowing NAV discount. Expect more of the same ahead of a potentially catalyst-rich next few months. Despite its flaws, KF ticks a lot of boxes as a Korean large-cap play.
The fundamentals of Korean large-cap stocks are still very appealing. The Korea Fund could see advantages from further outperformance in the tech sector. A decreasing NAV discount provides an enticing opportunity.
The Korea Fund Inc., a long-standing foreign CEF with a 30-year history, is managed by John Cho and primarily invests in Korean stocks. Korean stocks present attractive valuations compared to earnings. KF's earnings are on the rise due to the recovery of the memory chip market and South Korea's strong export growth.
The Korea Fund is a closed-ended fund focused on South Korean equities with performance that is slightly ahead of its benchmark over the last decade. The fund has a discount to NAV of over 17% in the last 6 months, which may contract substantially in a bullish run in South Korean stocks. South Korea is taking cues from Japan's corporate governance reforms, potentially leading to improved shareholder activism and better market performance.
South Korean equities rally on positive economic data and export growth. The Korea Fund's discount to NAV remains favorable, and South Korea trades at a substantial discount to India and Taiwan. South Korean equities are attractive in terms of valuation and innovation potential, with Samsung outperforming IBM in 2022.
After a topsy-turvy year, Korean stocks are ending 2023 on a high. The 2024 micro/macro setup looks interesting as well, particularly at current valuations. Playing Korea through an active fund like KF has its drawbacks, but there are mitigating factors worth considering.
The JPM-managed Korea Fund is undergoing a period of relative underperformance. But there are mitigating factors, including relatively discounted portfolio valuations and a wide NAV discount. The broader Korean market remains cheap relative to its underlying fundamentals and could still rebound from here.
The Korea Fund is a good vehicle for gaining exposure to South Korea's stock market, especially in July when the discount is near a historical low. Despite underperforming the iShares MSCI South Korea ETF, KF can outperform during bull markets, having done so by over 10 percentage points in the past year. South Korea's economy faces headwinds with declining exports, but there are opportunities in the country's larger tech and consumer stocks, as well as in its banking sector.
2023 is shaping up to be a much better year for Korea as last year's headwinds begin to reverse. In addition to a fundamental export-led recovery, equities should also benefit from technical and policy-driven valuation tailwinds.