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Korean equities

Credit Suisse says Korean stocks remain cheap

Oct 15, 2020 (Gmt+09:00)

South Korean bourses may have been Asia’s top performers since global stock markets hit troughs in March, but the country remains Credit Suisse's top regional pick given robust exports and corporate earnings, the securities company said in a recent note. It picked tech, autos and banks as its favorite sectors for the country.

“Despite its outperformance, Korea still looks cheap relative to its north Asian peers. Its cyclically adjusted P/E, dividend yield, P/B and equity risk premium are trading at bigger discounts to historical averages than comparables in China, Taiwan and Japan,” the securities company said in the Oct. 13 note. 

“We expect Korea to generate the sharpest earnings recovery in the region this year and next,” it added.

Credit Suisse expects Korean stock markets to have more upside potential, saying: “Markets have also insufficiently rewarded Korea for its growth."

It remains upbeat on tech, autos and banks, naming Samsung Electronics Co., Hyundai Motor Co., Kia Motors Corp., KB Financial Group and POSCO as its top picks.

In its August research note, the securities firm recommended the three sectors which had underperformed due to economic uncertainty. At that time, it expected the broader index Kospi to climb to 2,600 points.

In September, South Korea posted its first year-on-year export growth in seven months, led by strong shipments of chips, autoparts and cars.

“We expect an inflection point in memory (chip) average selling price by the first quarter of 2021, and autos are benefiting from improved product mix and a broader global sales recovery. Banks look to have overdiscounted the risks on margins and credit costs," Credit Suisse said in the Oct. 13 note.

With Asian currencies firming up against the dollar, it said the stronger won provides support for Korean stock markets. The won has risen to its strongest level in one and a half years, trading at the 1,140 range per dollar, mirroring the Chinese yuan's gains against the dollar.

It added that Korea could be one of the biggest beneficiaries of Joe Biden's possible victory in the November presidential election on expectations of more predictable US trade policies. After China and Hong Kong, South Korea is the most sensitive to trade tensions between the US and China.

Its target price for Samsung Electronics at 81,000 won signals 35% upside potential, with Hyundai Motor seen to have 14% room to gain from Thursday's close, based on its target price of 200,000 won.

“Weak capex in memory (chips) should lead to improved average selling prices by the first quarter of 2021, and productivity gains should help margins. Costs in the handset and consumer electronics businesses are benefiting from increased online purhcases. Samsung Electronis still looks cheap relative to peers."

The research note was released after Samsung Electronics estimated that its third-quarter operating profit jumped nearly 60% to 12.3 trillion won, marking its highest quarterly point in two years.

The Kospi closed down 0.81% at 2,361.21 on Thursday. It has been in a range of 2,200 and 2,400 since August.

Yeonhee Kim edited this article.

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