Latest news with #MorningstarWealth
Korea Herald
6 days ago
- Business
- Korea Herald
Morningstar says Korean stocks are emerging markets' best bet for decade
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)
Korea Herald
6 days ago
- Business
- Korea Herald
Morningstar says Korean stocks are emerging market's best bet for decade
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)
Bloomberg
7 days ago
- Business
- Bloomberg
Morningstar Says Korean Stocks Are EM's Best Bet Despite Tariffs
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%-12% in dollar terms over the next 10 years.
Business Mayor
14-05-2025
- Business
- Business Mayor
Markets Are Volatile: Can Investors Still Diversify in 2025?
Diversification is a vital part of investing success, but there are signs that it's getting harder as markets become more volatile. Effective asset allocation, such as dividing a portfolio between bonds and stocks, is used to enhance returns when markets are rising and protect capital and reduce risk when they are falling. Investors want assets that operate in different ways to each other in different market conditions. A key concept here is correlation*, the extent to which securities move in similar or different directions. When one part of your portfolio is falling, a rise in another part can balance out total returns. But asset allocation is not always easy, especially during phases of high volatility such as in April when the US government announced tariffs on global trade partners. 'In times of uncertainty, correlations between asset classes tend to increase, and this particularly applies to equity markets,' explains Nicolò Bragazza, associate portfolio manager at Morningstar Wealth. 'Since investments in the same asset class, such as equities, tend to have higher correlations precisely in times of stress where diversification is most needed, investors look for investments with different characteristics to mitigate this phenomenon.' Asset allocation should not only be judged by performance, but also by the balance it manages to strike between risk and return over the long term. Correlation Between Asset Classes Is Increasing Here we have looked at 14 major Morningstar Categories over three different time horizons: in the first four months of 2025, in 2024, and in 2023: EUR corporate bond EUR government bond EUR high yield bond EUR inflation-linked bond USD corporate bond USD high yield bond USD diversified bond Emerging markets bond Europe large cap blendequity Japan large cap equity US large cap Blend equity Asia-Pacific ex-Japan equity Latin America equity Commodities precious metals Looking at the tables, the correlation between the various asset classes since the beginning of the year have increased significantly, especially for certain categories: the greener the box, the higher the correlation; conversely, the more the box tends to red, the more the coefficient will be negative. This implies that it's been harder for investors to diversify in more volatile and unpredictable markets. Which Categories Are Negatively Correlated? After equity and bond categories had increased their correlation coefficients in 2023 compared with previous years, some divergence was seen again during 2024, particularly in the Europe, Asia-Pacific, and Latin America equity categories, as well as inflation-indexed euro bonds. Last year there were as many as 17 inverse correlations. In the first four months of 2025, however, we see only one negative correlation, that between euro government bond funds and Europe large-cap equity funds. Negative correlations can be useful for investors: if one part of the portfolio rises 10% when another falls 10%, this is described as perfect negative correlation. In practice, this is very hard to achieve. In particular, products exposed to gold seem to have lost their natural role as portfolio diversifiers. While precious metals exchange-traded commodities showed only three weakly positive correlations during 2024. In early 2025 there are no negative or null correlations. This year the price of gold has hit new record highs. The same trend is noticeable with Latin America equity funds, which have been much less 'diversifying' in these early years. For example, this category has seen its correlation coefficient with Japan equity funds rise from negative 0.54 last year to positive 0.27 this year. 'Correlations, however, may not fully capture the diversifying potential of an investment,' Morningstar's Bragazza says. 'For example, although correlations in LatAm equities have increased since last year, Brazilian and Mexican equities have offered positive returns since the beginning of the year, while global equities are in negative territory, highlighting that although correlations are positive these have not translated into a lack of diversification.' Beware of the Currency Effect Correlations between US and European bond categories are affected by the dollar effect. During 2024, the euro depreciated sharply against the dollar, while the trend was exactly the reverse in early 2025. On April 21, the euro touched its three-year high at $1.15, before dropping again to $1.11 after the US-China trade deal was announced. This had the effect of increasing the correlation between the categories devoted to European or eurozone equities and those of US bond categories. 'The depreciation of the dollar has affected all correlations,' says Bragazza. 'If we take Brazilian equities, their correlation in local currency or in euros is different (and higher in euros) in relation to bonds in euros, dollars or even toward European and American equities.' 'In the long run, however, the effect of currencies is less evident, as is that of sentiment, and so correlations tend to express more co-movements in fundamentals, and this is reflected in higher correlations between riskier asset classes, such as equities and high-yield bonds,' adds Bragazza. How Correlation Works and Why it Matters The work of late Nobel laureate Harry Markowitz on modern portfolio theory looked at why the more a financial portfolio is composed of securities of different properties (such as sectors or style biases), the more the degree of risk is lowered. Deciding how much of a portfolio to devote to equities, bonds, or other assets depends on correlation, which identifies how closely two assets track each other's movements. This is expressed as a number between negative 1 and positive 1. A coefficient of 0 indicates that there is no correlation between the two funds. A coefficient of 1 indicates that there is a perfect positive correlation, which means that the two instruments move together: if one rises by 10%, the other does too, and vice versa. Obviously, in the case of perfect negative correlation (equal to negative 1) the ratio is inverse: if the first rises by 10%, the second loses 10%. The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
Business Recorder
05-05-2025
- Business
- Business Recorder
Wall Street Week Ahead: Fed outlook in focus as US stocks rally picks up steam
NEW YORK: The Federal Reserve meeting in the coming week is set to test the US stock market's sharp rebound, with investors hoping the central bank is poised to resume lowering interest rates in the months ahead. During the rally, stocks have erased the slump set off by President Donald Trump's sweeping tariffs. The S&P 500 was last little changed since April 2, when Trump's 'Liberation Day' tariff announcement sent stocks plunging and led to some of the market's most volatile swings in 50 years. While the Fed is widely projected to hold borrowing costs steady in its monetary policy statement on Wednesday, market pricing indicates expectations that the central bank could cut as soon as June, although odds of such a move dimmed following Friday's solid U.S jobs report. 'The Fed is one of the few levers that can be pulled in a timely fashion that can support market activity,' said Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth. 'If they start to signal that their inflation concerns are waning, that suggests they are closer to a cut, and I think that will be well received by markets.' Trump's tariffs loom over policy decisions for central bank officials weighing concerns about a potential economic downturn against worries that tariffs will drive inflation higher. Data this week showed the US economy contracted in the first quarter for the first time since 2022, but many analysts discounted the report, saying the weakness was driven by a surge in imports as businesses sought to avoid higher costs from tariffs. After cutting by 1 percentage point last year, the Fed has held its benchmark rate at 4.25%-4.5% so far in 2025. Fed funds futures are factoring in at least three more 25-basis point cuts by December, according to LSEG data. The amount of expected easing this year fell modestly after data on Friday showed US employment increased by a higher-than-expected 177,000 jobs in April. The White House has raised pressure on the central bank to cut rates, with Trump harshly criticizing Fed Chair Jerome Powell, who has said the Fed would await more data on the economy's direction before changing rates. Last month, Trump raised the possibility he would seek to fire Powell, setting off market worries about damage to the Fed's independence. Trump later appeared to back off. At next week's meeting, Powell 'might continue to sound hawkish to push back on the narrative that the Fed is going to be influenced by the White House,' said Angelo Kourkafas, senior investment strategist at Edward Jones. Even after eight straight sessions of gains, and on pace for a ninth on Friday, the S&P 500 remains down about 8% from its February record high. Last month, the benchmark index dropped nearly 20% below that peak. Corporate results reports over the past few weeks have generally exceeded expectations. With about two-thirds of the S&P 500 having reported, companies in aggregate are posting earnings 7.4% above expectations versus a long-term average of 4.3% above estimates, according to LSEG IBES. Shares of megacaps Microsoft and Facebook parent Meta Platforms gained on Thursday after their results, boosting equity indexes. Results in the coming week include Uber Technologies, Walt Disney and ConocoPhillips. Trade developments will remain in focus, with investors saying the market's rebound came on optimism that tensions were easing and that deals with other countries were progressing. Trump on April 9 paused hefty import levies on many countries for 90 days, as the US negotiates with other countries. That move sent stocks soaring. 'The market wants to see, and expects to see, some solid signed deals with some of our trading partners,' said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. 'The market is anticipating something, and it's time for the rubber to hit the road.'
