(Bloomberg) -- For short sellers who are ready to take aim at South Korean stocks when a ban is lifted next week, Europe’s biggest asset manager has some advice: such a move may backfire.
“It’ll be very dangerous for short sellers to target South Korea,” Vincent Mortier, group chief investment officer of Amundi SA, said in an interview on Tuesday in Hong Kong. With negatives like the political and economic uncertainty already priced in, investors may be “surprised to the upside,” he added.
Mortier expects South Korean equities to extend their recent gains when a curb on short selling is lifted on March 31, and he sees the move as a step toward normalization that may help the country win developed market status from MSCI Inc. Such anticipation, along with the government’s efforts to boost stock valuations, offer an “interesting opportunity” for mid- and long-term investors, the money manager said.
South Korean stocks are showing signs of a revival following a dismal 2024, when political headwinds including the president’s impeachment hurt the market’s prospects. The Kospi Index has gained more than 9% this year, outperforming the MSCI Asia Pacific Index, as heavyweights Samsung Electronics Co. and SK Hynix Inc. lured investors back on cheaper valuations.
The CIO for the $2.4 trillion asset manager sees the market as under-rated and under-owned by foreigners, and expects the government’s “value-up” program to help stocks follow the trajectory of Japan, where corporate reforms pushed benchmarks to new highs.
While some worry the revival of short selling may fuel market volatility, others say it can also improve liquidity by attracting hedge funds, who use the strategy to manage risks. Pictet Asset Management said in February it plans to buy more stocks once the resumption allows it to hedge its long equity positions.
South Korea has long sought to win MSCI’s upgrade from emerging market status, but its short-selling ban — in place since November 2023 — is regarded as a barrier. A change in the MSCI classification, which is only “a question of time,” will attract flows and a re-evaluation of the market, according to Mortier.
The Kospi trades at only nine times its forward earnings estimates, compared with around 14 for MSCI Asia and Japan’s Topix Index.
Persistent selling by foreigners since mid-2024 has pushed the amount they hold to 31.6% of the Kospi as of February, down from 35.6% in July, according to data from the Korea Financial Investment Association.
Among Asian benchmarks, the Kospi’s advance this year is next only to Hong Kong stocks, which are benefiting from China’s technology breakthrough.
Mortier said that while there’s a lot of talk on China, the innovation and investments from South Korean companies are also worth noting. He prefers traditional automakers and financials, given that they will benefit from the “value-up” initiative.
--With assistance from Youkyung Lee.
