Morningstar says Korean stocks are emerging markets' best bet for decade

Korea Herald

10-07-2025

A fund manager at Morningstar Wealth is selling Chinese and Japanese equities to increase exposure to South Korea, which he's betting on to provide the best returns in both emerging and Asian markets over the next decade.
Korea's key draws are technology stocks tied to the artificial intelligence boom and a newfound political will for corporate reforms, according to Mark Preskett, a London-based senior portfolio manager at the firm. He said he's betting on annual returns from Korean stocks of 11 percent-12 percent in dollar terms over the next 10 years.
Preskett is unfazed by US President Donald Trump's announcement Monday of a 25 percent tariff on Korean imports, saying that his base case is for 'some kind of agreement to be signed by the two countries in the coming weeks.' He said that the lack of any escalation on existing tariffs on autos, and the exemption of electronics and pharmaceuticals, were also positives for his outlook on Korea.
The benchmark Kospi index has climbed more than 30 percent this year, making it one of the world's top performers in 2025. Global funds poured about $3 billion into Korean equities in May and June around the election of President Lee Jae Myung, who has intensified efforts to improve corporate governance standards and raise equity valuations.
'Korea stands out at the top in terms of expected returns,' Preskett said in an interview in London. 'We see this as the beginning of a revaluation story.'
The fund manager said he's encouraged by the government's drive to codify corporate governance reform with its 'Value-Up' program, while legal changes approved by parliament last week will help alleviate longstanding concerns about minority shareholder rights and the dominance of family-run chaebols.
The more stable government since Lee's election, along with concerted steps to reduce the 'Korea discount' of the nation's stocks versus emerging-market peers, are making the market more attractive, particularly relative to China, Preskett said. Companies in Korea have a weighting of less than 11 percent in the benchmark MSCI Emerging-Market Index, compared with China's 26 percent.
'We see Korea has some of the same attractiveness from a valuation perspective, but the fundamentals are a little stronger,' he said. 'You don't have this overhang of the property sector, you don't have the sort of question marks around shareholder governance.'
Among specific stocks, Preskett is positive on SK Hynix Inc. and Samsung Electronics Co. as makers of high-bandwidth memory chips that are crucial for AI. He also says they're undervalued, even with Samsung up by about 14 percent this year, and SK Hynix up 62 percent.
Corporate reforms
Risks remain for the market, even beyond tariffs, especially in terms of getting companies on board with the government's plans.
'Controlling shareholders may resist deeper reforms, particularly around capital management, and continue to suppress dividends under the guise of conservatism or future M&A,' said Jonathan Pines, head of Asia ex-Japan at Federated Hermes.
Recent market volatility is still fresh in investor's minds as well after the political turmoil around the previous president's declaration of martial law in December. With a further drag from Trump's tariffs, the Kospi slumped about 13% over two weeks into April.
Still, Preskett sees the Korea story as a strong long-term investment theme, noting that the new government has pledged fiscal reforms that should also help the consumer and banking sectors.
'For us, it is the start of a journey,' he said. 'We feel that it's tip of the iceberg in terms of flows and potential revaluation.' (Bloomberg)