South Korean shares reacted relatively calmly on June 12 to the North Korea-US Summit which is hailed as "talks of the century." This is because there are a number of big events waiting like the Federal Open Market Committee (FOMC) even after the North Korea-US Summit. Some investors show expectations that the summit between the U.S. and North Korea will serve as a momentum that ends the undervaluing of Korean stocks dubbed “Korea discount” in earnest from the long-term point of view.
The benchmark KOSPI index closed virtually unchanged, down 0.05 percent at 2,468.83. It reached the 2,480 level between 10:00 to 11:00 am when North Korean leader Kim Jong-un and US President Donald Trump had the talks but closed down after foreign investors went on a selling spree. Institutional investors net bought 122.2 billion won (US$113.36 million) worth of shares on the KOSPI stock market but foreign investors net sold 126.7 billion won (US$117.53 million). The secondary KOSDAQ also closed at 875.04 points on the 12th, down 0.17 percent from the previous day's close.
Market experts believe that investors are taking a wait-and-see attitude rather than immediate expectations for the North Korea-US summit as large events scheduled this week. A FOMC meeting will be held in the US on the 12th and the 13th (local time) and a European Central Bank (ECB) meeting on the 14th. This is why the global stock prices are also holding steady recently. Although expectations for the US- North Korea summit were reflected in the New York Stock Exchange on the 11th (local time), the DOW inched up 0.02 percent and the Standard & Poor's 500 (S&P 500) 0.11 percent. There is a general consensus among the Yeouido Stock Street that the FOMC will decide to increase the benchmark interest rate in the US at the meeting. It also eyes on the details of the conference minutes to be open to the public later.
Although South Korean stock prices remained relatively steady, some North Korea related stock prices fluctuated. Among stocks that were expected to get benefits in the process of South-North economic cooperation, such as railway, cement and feed, Hyundai Feed Inc. and Sungshin Cement Co. saw their stock prices drop 10.32 percent and 9.86 percent from the previous day. This is largely due to the fact that investors who continuously bought the stocks with high expectations decided to sell them to realize profits. HDC Hyundai Development Co., which owns a land of 150,000 pyeong in Paju, Gyeonggi Province, located near North Korea, resumed its stock trading on the 12th but saw its stock prices fall as much as 4.78 percent contrary to expectations.
On the other hand, Firstec Co. and Welcron Co., developers of mine-clearing robots and instruments and Chobi Co. and Kyung Nong Corp., feed producers, hit a 52-week high. Orbitech Co., which involves in nuclear dismantlement, also showed a rise of 8.4 percent.
Expectations are growing among some investors that the summit between the U.S. and North Korea will become a starting point overcoming “Korea Discount.” Yum Dong-chan, an analyst at eBEST Investment & Securities Co., said, “There are growing expectations that concerns over a geopolitical risk, one of main factors of “Korea Discount,” will be lessened after the talks between North Korea and the US. Too much emphasis on information and technology (IT) stocks and shareholder return policies should be improved. However, it’s just a matter of time before relieving “Korea Discount” and the summit is highly likely to be a starting point. Accordingly, I recommend to increase the share of domestic stocks.” According to at eBEST Investment & Securities, South Korea’s expected price-to-earnings ratio (PER) for 12 months is a mere 8.6, much lower than India at 17.9, Taiwan at 15.2, Japan at 13.5 and China at 12.6 as well as the US at 16.7 and the UK at 13.9.