Global banks bullish on South Korean, Taiwanese shares

SINGAPORE: Global banks are bullish on South Korean and Taiwanese shares, expecting a revival in semiconductors to drive a rally next year, while they see Japan's market as resilient thanks in part to its weak currency.

The calls come as US rates are still rising, with most markets around the world eyeing their worst annual returns since the 2008 financial crisis and chipmakers' profits cratering.

Goldman Sachs says South Korean stocks are the bank's top rebound candidate for 2023 due to low valuations, made cheaper by a nosediving Korean won, and as companies benefit from an expected recovery in Chinese demand. It expects a return of 30 per cent in the year 2023.

Morgan Stanley gives Korea top billing. The bank says that it is the best place to be as the two markets have a reputation as early-cycle leaders in the demand recovery.

Bank of America, UBS, Societe Generale and Deutsche Bank's wealth manager DWS are all bullish about Korean stocks, with analysts' conviction that trade lies in stark contrast to its divided view on India and China.

The market always starts to run before the first quarter of next year, and demand should drop in the semiconductor area, said Sean Taylor, DWS' Asia-Pacific chief investment officer.

We think Korean stocks sold too much in September and August. South Korea's benchmark KOSPI index has lost 17 per cent this year, and the won has declined 9 per cent, although both have shown signs of recovery in recent months.

Five years of selling has led foreign ownership of Korean stocks to its lowest level since 2009, but inflows of about $6 billion since the end-June indicates a turn in foreign interest that could lift the market further.

Societe Generale's advice for investors to increase exposure to Korea and Taiwan comes at the cost of China, India and Indonesia. Goldman's preference for Korean stocks has led to a reduction in Brazil exposure. Morgan Stanley downgraded its view on Indian exposure in October when it upgraded its recommendation for South Korea.

Morgan Stanley is very bullish about chipmakers turning out commoditised low-cost chips and chips destined for consumer goods, including companies such as Samsung Electronics or SK Hynix. Morgan Stanley has a price target for SK Hynix, which is about 50 per cent more than the current share price.