Platinum Asset Management has characterised the MSCI AC Asia ex Japan Index as “unloved” since 2021, citing its -2.29 per cent net returns over the past three years.
In a recent webinar, Cameron Robertson, Platinum’s portfolio manager for Asia strategies, noted a subdued performance in Asian stock markets in recent years. However, there are signs of a rebound, he said, with the index showing a 3.23 per cent return over the three months ending on 31 May, with an expectation that these positive market trends will persist.
“We are pretty fully invested in the Asia strategy, as invested as we have been over the past decade because we do like what we’re seeing. We are finding opportunities, we are putting the money to work, and that’s broadly across the region,” Robertson said.
The portfolio manager is particularly enthusiastic about South Korea, which Platinum Asset Management calls “Japan 2.0”. This term reflects the optimism surrounding Japan’s recent strides in corporate reform and highlights South Korea’s potential for similar improvements.
“To my mind, the Korean market is actually an even better opportunity than what you saw in Japan,” Robertson said.
“I think that should actually lay the foundation for quite strong returns over the next five to 10 years.”
Korean regulators have, likewise, been undergoing a corporate governance overhaul, most recently through the “value up” initiative which seeks to address the discount that many Korean companies trade at relative to their international peers.
The program spans several areas and intends to incentivise better use of capital, reduce cross shareholdings, and improve shareholder returns. It also includes the creation of a dedicated index and an exchange-traded fund (ETF) for companies actively participating in the program, offering investors a targeted investment vehicle, and tax benefits to incentivise participation.
Robertson noted that actions taken by Korean regulators implement increased protections in a market that already has a stable democracy, is technically advanced, and is geopolitically allied.
“People just aren’t paying that much attention to the market,” he conceded.
“Foreign participation has been quite low. In recent months, we’ve seen people coming back, but you’ve got to go back more than a decade to get to levels of foreign interest being this low.”
Platinum is not the first fund manager to note Korea’s potential, with Antipodes investment director Alison Savas highlighting last month that Korean regulators may be following the path carved by Japan.
Similarly, Maple-Brown Abbott’s Will Main, head of Asia, and Howard Ho, portfolio manager for Asian equity income, said recently they believe that the potential value-add in South Korea could surpass that of Japan. Namely, in March, the Korean market was valued at approximately 1.0 price-to-book, with around 69 per cent of listed companies trading below book value, compared to about 47 per cent in Japan.
Korea maintains AI-wave hot streak
Looking at Platinum’s holdings in the region, Robertson highlighted bright spots driven by winners in the artificial intelligence (AI) wave, with Korea emerging as a significant player in the semiconductor industry.
“The semiconductors that are essentially powering this AI revolution that you’re seeing coming through, mostly come out of Korea and Taiwan. There’s the big companies that you’ll know, and there’s a whole ecosystem of companies that support them.”
For instance, Korean company Soulbrain is engaged in the manufacture of chemicals used in the semiconductor industry, and according to Robertson, holds a monopoly or duopoly position in the market.
“The real key here is just the formulation, the consistency, and the purity required in these products presents a serious competitive barrier for competitors.”
Meanwhile, HPSP, a supplier of semiconductor high-pressure hydrogen annealing equipment to global semiconductor manufacturers, experienced a significant boost in its 2023 earnings, more than doubling from 2021 levels and nearly tenfold from 2019.
Last month, Antipodes said it is looking for companies that are mispriced relative to their business resilience and their growth profile.
“To be blunt, we’re not putting all our eggs in the value up basket. Instead, we’re focusing on companies with solid investment cases where value up represents another way we can win,” Savas said.
“Hyundai Motor is a good example of this.”
The firm explained that the global cyclical element, considering strong auto demand and supply chain constraints post-COVID-19, supports ongoing auto demand, with Hyundai positioned well with its strong brand, competitive EV technology, and low exposure to China, offering potential for valuation uplifts and increased shareholder benefits.
