Korea-most favored by fund managers

HONG KONG: Tension on the Korean peninsula and concern about an economic slowdown will rob South Korea of its investment allure in the short-term but the country stays the best 12-month bet in Asia, a quarterly survey of fund managers shows.

"Over 12 months we are overweight just two markets in the regional portfolios -- Hong Kong and South Korea. Of the two, South Korea has better fundamentals," JF Asset Management said in the latest quarterly Reuters/Benchmark survey.

The survey, held before the start of the U.S.-led attack on Iraq, showed some 46 percent of fund houses picked South Korea as their most favored market. "The valuations are pretty attractive, the economy is doing reasonably well and once the North Korean situation is resolved then, you would see quite a strong rebound in Korea," said Shane Oliver, head of investment strategy at AMP Henderson Global Investors, which manages about US$150 billion of assets globally.

The Philippines, meanwhile, kept its place at the bottom of the ranking, plagued by the weak peso, the country's ballooning fiscal deficit and rising oil prices. Funds also said the biggest risk factors for the investment climate in the next three months and one year was the uncertainty over Iraq and the North Korean nuclear crisis. Rising crude oil price and weakness in the U.S. economy were other concerns, they said.

Philippines, the least loved

China and India tied for the second spot on a one-year investment horizon, backed by 15 percent of money managers polled in the survey. Hong Kong, the Philippines and Thailand each received eight percent support. On a three-month horizon, Thailand headed the list with 31 percent, ahead of China and South Korea. Hong Kong and Malaysia were the other markets on the list of three-month favourites of fund houses.

Forty-six percent of funds tagged the Philippines as the least-loved Asian market, marking it as an underperformer over both a three and 12-month period. The Philippines has been named the least, or next-to-least liked market in 12 of the 13 quarterly surveys conducted, with third-quarter 2002 its worst showing so far.

Taiwan came in second on the three-month disliked list with Indonesia trailing behind. Australia and Singapore completed the list of likely underperformers for that period. On a one-year basis, Japan pulled in 15 percent of vote to become the second least-liked market ahead of Taiwan, Indonesia, China, Singapore and Australia.

Fund managers remained positive on regional equities despite the recent weakness in global markets as Asian stocks are cheaply valued vis-a-vis their U.S. and European peers. They say any post-war rally could lead to a relative outperformance of the regional markets. Material, industrial, commodity, consumer, infrastructure and utility stocks were popular defensive sectors picked by fund managers as overweights in the coming quarter. Investors said they would prefer to stay underweight on technology, property and banking stocks on a three and 12-month view.

© Reuters