Dealers work at Hana Bank headquarters in Seoul, March 3. Yonhap
Peter S. Kim, global investment strategist at KB Financial Group
HONG KONG — When U.S. and Israeli forces launched massive airstrikes against Iran, Korean markets swung to extremes.
On March 3, the first trading day after the attack, the benchmark KOSPI tumbled 7.24 percent, tripping a sell-side circuit breaker. Losses deepened the following day, with the index down as much as 12 percent at one point — worse than the declines seen after the 9/11 attacks in 2001.
The rout quickly reversed. On March 5, KOSPI surged 9.63 percent, its biggest one-day gain on record, activating a buy-side circuit breaker.
Such swings contribute to the “Korea discount,” said Peter S. Kim, a global investment strategist at KB Financial Group, referring to the chronic undervaluation of Korean-listed companies.
Kim, who also serves as senior managing director and head of the global business and wholesale division at KB Securities, has over 30 years of experience in the industry. He has held leadership roles on both the buy and sell side, ranging from country CEO of HSBC Securities Korea to founding a pan-Asia hedge fund in Hong Kong.
Korea’s retail investors are known for high-risk, short-term trading and heavy use of leverage. Sidecars have been triggered nine times this year alone. In such an environment, hedging becomes difficult for institutional funds, Kim said, making the market behave more like an emerging one.
“Foreign investors find this baffling. How can an index in a market that isn’t even small swing 5 percent to 6 percent so casually?” Kim said in an interview at the Jefferies Asia Forum in Hong Kong. “Corporate governance is one reason, but an even more underappreciated factor is this kind of volatility.”
Kim said the situation raises a fundamental question: How should investors approach Korea, and how can they manage risk?
Source: Korea Times News
