BlackRock has raised its investment view on emerging market equities, including South Korea, to overweight. The shift comes just three months after the world's largest asset manager cut its stance to neutral in June, citing the market's concentration in semiconductors and risks from leveraged bets. The change is seen as reflecting a view that volatility has eased somewhat as government measures to rein in leverage and large-scale deleveraging have progressed.
The BlackRock Investment Institute (BII) said on the 14th that it had lifted its view on emerging market stocks, including Korea, from neutral to overweight. It pointed to solid earnings across corporate sectors led by Samsung Electronics and SK hynix, as well as the market's position along key routes of the semiconductor and memory supply chains. BlackRock said such features would drive outperformance in emerging market equities.
The firm's assessment of the Korean market has reversed in three months. On June 30, BlackRock had lowered its view on emerging market equities from overweight to neutral. At the same time, it noted that the Korean market's distinctive concentration in semiconductor and artificial intelligence stocks, along with expanding leverage on single names, was amplifying volatility and worsening return profiles.
The reversal is read as BlackRock acknowledging that deleveraging efforts in the Korean market are taking effect. Margin loan balances in Korea peaked for the year at 38.6 trillion won on June 24 but fell 15.4% within a month in the aftermath of a sharp share price drop and forced selling of margin positions. In the latest report, BlackRock said that "deleveraging over the summer has eased leverage concerns that had been driving volatility in the Korean stock market."
Strong corporate earnings growth and relatively low valuations were also cited as factors boosting investment appeal. According to the report, earnings at companies in the MSCI Emerging Markets Index are forecast to rise 34.2% over the next 12 months, far above the 20.3% expected for the MSCI USA Index. The forward 12-month price-to-earnings ratio for emerging market stocks stands at about 10 times, roughly 50% below the 19.9 times for U.S. stocks.
Still, the report cautioned that for the positive assessment to hold, solid earnings growth and valuation appeal will need to offset risks stemming from macroeconomic uncertainty.
