(Bloomberg) -- South Korean stocks are being unfairly sold off alongside their Chinese counterparts on investor concerns about the ongoing trade war, but that has created a buying opportunity and the trend should eventually reverse, according to a local fund manager.
Hanwha Asset Management, which oversees about 95 trillion won ($84 billion), has highlighted a number of exporters most hit by the U.S.-China trade war, including display maker LG Display Co. and chip manufacturers Samsung Electronics Co. and SK Hynix Inc. It sees the potential for Korean companies to profit from the dispute over time, and take market share from Chinese peers.
“That’s the only way we could probably survive,” said Lee Junhyuck, a managing director at Hanwha in Seoul. If the trade war drags down China’s economy, and other regions grow faster as a result, “Korea has the chance to export more to those regions,” he said.
In addition, American efforts to stop the alleged theft of intellectual property, particularly in memory chips, could make it more difficult for Chinese technology companies to compete with their global peers, including their Korean rivals, Lee said.
South Korean assets have closely tracked the slump in China’s this year thanks to their regional proximity and the export nature of the Korean economy. The benchmark Kospi Index has fallen 16 percent, just behind the 19 percent decline in the Shanghai Composite Index. The won has dropped over 5 percent against the dollar in 2018, compared to a 6 percent decline in the offshore yuan.
The Hanwha Korea Legend Mid & Small Stock Securities Feeder Investment Trust, of which Lee is the lead manager, has beaten 94 percent of its peers over the last three years, according to data compiled by Bloomberg.
In the long run, “Korea is not China,” Lee said. Economic indicators will eventually prove a catalyst for Korean assets even if China’s situation grows worse due to the trade war, he said.
Still, not all stocks will benefit according to Lee. Equipment-makers, tourism and consumer shares tied to the spending of Chinese tourists in Korea will continue to suffer from the effects of the trade war, he said. And he doesn’t expect a quick turnaround on his investments, seeing uncertainties persisting into next year.
“U.S. tariffs on Chinese goods can cause volatility in U.S. consumer prices, which in turn may lead to faster Federal Reserve hikes,” he said. “Tightening liquidity means the U.S. will likely suck up all the funds, so there is nothing good for the market.”
To contact the reporters on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net;Whanwoong Choi in Seoul at wchoi70@bloomberg.net;Heejin Kim in Seoul at hkim579@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen, Naoto Hosoda
©2018 Bloomberg L.P.
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