[SEOUL] International money managers are losing patience with South Korea's biggest companies after the 17th straight quarter of disappointing earnings.
Overseas investors have pulled a net US$771 million from the nation's stocks in 2015, the only outflows among six Asian emerging markets tracked by Bloomberg, after withdrawals of almost US$2 billion in December.
Seventy-four per cent of Kospi index companies that reported fourth-quarter results so far have trailed analyst estimates, versus 57 per cent for the MSCI Emerging Markets Index.
Kia Motors Corp. and Naver Corp. were among the most sold stocks as lower-than-estimated earnings added to concern that a stronger won is weighing on Asia's fourth-largest economy. The Bank of Korea cut its 2015 growth forecast last month, while Franklin Templeton Investments says global money managers are finding more attractive stocks in India and Taiwan.
"Foreign investors seem to be tired of earnings repeatedly disappointing," Oh Sung Sik, the chief investment officer for Korean equities at Franklin Templeton Investments in Seoul, which oversees about US$4.9 billion, said in a Feb 5 phone interview.
"Although prices are cheap, there's no growth momentum, which makes people reluctant to pour money into such a market."
The Kospi fell 0.3 per cent to 1,940.43 at 11.22am in Seoul, versus a 0.1 per cent decline in the MSCI Asia Pacific Index.
Naver, Samsung Naver Corp., which runs the Line messaging service, recorded US$302 million of outflows this year while Kia Motors, the nation's second-biggest automaker, had US$160 million.
Samsung Electronics Co., the nation's biggest company, had the biggest withdrawals at US$847 million. While the company's fourth-quarter earnings beat estimates, it lost market share to Apple Inc. in smartphones.
South Korea's economy expanded last quarter at the slowest pace in more than two years. Exports fell 0.4 per cent in January, while a Jan 30 survey showed a drop in confidence among manufacturers. The BOK cut its estimate for economic growth to 3.4 per cent from 3.9 per cent on Jan 15.
The won has gained 11 per cent against the yen in the past 12 months, weighing on Korean automobile and electronics manufacturers that compete against Japanese counterparts in offshore markets.
"Corporate earnings seem to be deteriorating," Kim Young Il, the head of equity at Korea Investment Management Co., which oversees equivalent of US$30 billion, said by phone on Feb 6.
"Given how sensitive Korea is to external economic conditions, investors may struggle to maintain confidence in the nation's stocks."
Foreigners may be lured back to Korean shares by low valuations and the prospect of higher dividends, said Nam Dong Woo, the chief investment officer for equities at Eastspring Asset Management Korea Co., which oversees about US$11 billion.
The Kospi is valued at about the same level as its net assets, a 32 per cent discount to the MSCI Asia Pacific Index. The Korean measure has advanced 1.3 per cent in the past 12 months, trailing the 5.9 per cent advance by the MSCI gauge.
South Korea is poised for the fastest dividend growth in Asia after Samsung Electronics boosted its payout and the government urged businesses to make better use of their cash hoards.
Payouts are set to rise 65 per cent during the next 12 months, according to analyst projections compiled by Bloomberg.
While dividends are climbing, they're still lower than peers. The Kospi index has a projected yield of 1.6 per cent, versus 3 per cent for the MSCI emerging markets index. Taiwan has a 3.5 per cent yield, while China's is 2.4 per cent.
"The rising payout ratio is definitely positive, but if you look at countries like Taiwan, it still remains above Korea," Son Hwiewon, a strategist at Samsung Securities Co., said by phone on Feb 6.
South Korea's peers are luring foreign investors with better-than-expected earnings. Taiwan has drawn a net US$3.1 billion this year as 62 per cent of companies in the benchmark Taiex index topped fourth-quarter earnings estimates.
In India, where 60 per cent of companies reporting so far beat forecasts, foreign inflows this year have totaled US$2.8 billion.
"Global investors are putting money in places that have a promising growth outlook," Chanik Park, the Seoul-based head of Korea equity research at Barclays Plc, said by phone on Feb 6. "South Korea just isn't attractive enough."