Asia Markets

Nomura identifies three factors that are fueling South Korean stocks

Key Points
  • By the end of the third quarter, South Korea's Kospi has risen nearly 6% so far this year. In comparison, the Shanghai composite in China has risen about 5.5%, while the Japan's Nikkei 225 remains around 2% lower.
  • Nomura's Chetan Seth says there're three reasons behind the positive performance of South Korean shares: retail investor support, the country's handling of the coronavirus pandemic as well as the composition of the stock market.
A currency dealer monitors exchange rates in a trading room at KEB Hana Bank in Seoul on December 30, 2019.
JUNG YEON-JE | AFP via Getty Images

SINGAPORE — South Korea's markets have powered ahead of their peers in a year that has seen major economies globally falling into recession as authorities race to stem the economic and public health fallout from the coronavirus pandemic.

By the end of the third quarter, the country's Kospi has risen nearly 6% so far this year. In comparison, the Shanghai composite in China has risen about 5.5%, while Japan's Nikkei 225 remains around 2% lower.

"I think there are three factors which are positive for Korean markets this year," Chetan Seth, an equity strategist at Nomura, told CNBC's "Street Signs Asia" on Thursday.

Firstly, stocks have gotten "massive support" from retail investors, a factor Seth said has acted as a "huge positive."

"There's a reason why that's happening. Interest rates are low, property market outlook is not so great so that money, that savings, that current account surplus has to go eventually into financial assets," Seth said. "Equities is possibly the only avenue."

The Nomura strategist added that the coronavirus pandemic remains "under control" in South Korea.

As of 12 a.m. local time on Oct. 1, South Korea has confirmed 23,889 infections while 415 have died, according to official data from the country. Meanwhile in the U.S., which reported its first infection at around the same time, the number of confirmed cases has crossed 7 million while more than 200,000 have died — according to the latest data from the Centers for Disease Control and Prevention.

Seth also said the Kospi has "a lot of interesting stocks," including pharmaceutical and biotech stocks that are "doing very, very well." There are also companies like LG Chem and Samsung SDI which are geared toward the electric vehicle battery theme.

The changing composition of South Korea's stock market contrasts against last year, where weak earnings from memory stocks were a "big issue."

Stocks in that segment have still underperformed, Seth said, but "the market leadership has been taken away by other interesting sectors."

"There're lots of things which are working ... for Kospi," he said.