Wednesday, December 1, 2010

Templeton still upbeat on South Korea despite tensions

KUALA LUMPUR: Franklin Templeton Investments is still positive on South Korea as it has been posting continued growth, with its markets and currency bouncing back resiliently from last week's assault by North Korea.

In a blog entry on Nov 29, executive chairman of Templeton Emerging Markets Group Mark Mobius said investors were aware of the geopolitical risks in the Korean peninsula, which was reflected in the ongoing valuation discount of the Korean market compared to other emerging markets.

'In the aftermath of this crisis, discounts on the Korean market could be even more significant than before in the short-term, but could restore to its normal level as the situation stabilizes,' he wrote.

He added the Korea Composite Stock Price Index (Kospi) began to recover just within one hour of trading and the won began to appreciate after weakening the night following the attacks.

'The Kospi fell by more than 2% at the opening on Nov 24 but since has recovered and ended the day relatively unchanged. Year-to-date, the market is up 17% in US dollar terms,' he noted.

'Assuming that the situation improves and does not escalate into a larger scale military confrontation, the financial market may stabilise quickly based on past experiences following the impact of North Korea's actions,' he said. 'Past incidents that have resulted in stock market corrections were short-lived. Thus, we believe it should not be any different this time.'

Mobius also said the crisis was unlikely to escalate further as North Korea did not have the capability to go to war without China's support and cooperation as the latter is the primary supplier of fuel to North Korea.

'The relationship between the pair has been difficult as China does not agree with North Korea's provocative actions to date,' he wrote. 'Also, the South Korean government is trying to resolve the situation peacefully.'

Mobius had blogged in response to the bombing of a border town between the Koreas on Nov 23 which saw four casualties in the first artillery attack on the South's territory since the war in 1950.

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