For Matthew Vaight, manager of the M&G Global Emerging Markets fund, the progress of South Korea’s economy can be illustrated through a comparison with its “wealthy neighbour” Japan, with whom South Korea co-hosted the 2002 Fifa World Cup.
“The IMF estimates that Korean income per head today is roughly one-quarter lower than Japan’s. When Seoul hosted the Summer Olympics in 1988, it was five times less,” he says.
Despite strong gains in 2017, Vaight adds that South Korea’s market valuation remains roughly the same. “Performance was mainly driven by earnings growth and there was little multiple expansion,” he says. “Korea remains attractively valued and has always been one of the cheapest markets, but this historic ‘Korean discount’ should narrow at some point.”
Vaight also subscribes to South Korea as a being a potential home for growing dividends.
“Korea’s payout ratio remains well below that of other markets and we believe there is plenty of room for them to grow,” he says. “The amount paid out in dividends remains low compared with other countries and we believe it has significant potential to rise.”
