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Baring Sees Korea Foreign-Capital Exodus Ending, Bets Big on Consumption

·2 min read

(Bloomberg) -- An $8.5 billion money manager says the outflow of foreign capital that has made South Korea one of the world’s worst-performing stock markets may soon be over.

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Baring Asset Management Korea Ltd. says the tide may turn as the Federal Reserve slows the interest rate hikes that have hit the exporting Asian nation hard. While the firm’s flagship Korean equity fund has fallen 14% over the past year, it has fared better than the benchmark Kospi’s 25% slide and outperformed 95% of its peers, according to data compiled by Bloomberg.

The firm has boosted investment this year in shares of Korean retailers, food, steel, chemicals and machinery, as well as travel and casino operators, Hyun Choi, head of equity, said in an interview. These bets are based on expectations for consumers to become more comfortable with higher prices and companies to increase spending.

Korea’s dismal equity performance, trailing only Russia and Poland over the past 12 months, has been driven largely by an $18 billion selloff by overseas investors. Korea’s heavy reliance on exports amid a global economic downturn and the sharp weakening of the won have helped drive the exodus. But Choi senses a change.

“The foreign selloff has nearly reached its climax,” he said. “Now we have people who believe the dollar will not strengthen significantly from here, and an increasing number of people who see this as a possible bottom for stocks.”

Choi cites wagers on financial and energy stocks for the fund’s outperformance over the past year. The fund also avoided overvalued recent initial public offerings as well as internet and game shares.

The equity manager is bullish on Korean automakers longer term, seeing them as leaders in the electric-vehicle market. While the firm slightly increased its holdings of chipmakers and internet stocks in recent months, it’s still underweight the former and the latter remain expensive, Choi said.

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