[Interview] "Korea Is a Core Emerging Market Investment Destination... The Korea Discount Will Narrow"

Dina Ting, Senior Vice President at Franklin Templeton
Strong Competitiveness in Semiconductor, Shipbuilding, and Defense Exports
K-Pop’s Global Cultural Influence and Innovation Power
"Top Priority: Governance Reform and Minority Shareholder Protection

"The KOSPI has surged by approximately 60% this year. While it will be difficult to replicate this pace of gains next year, we believe Korea is well-positioned to remain a leader in the next phase of the emerging market recovery."

Dina Ting, Senior Vice President at Franklin Templeton, a global asset management firm that has identified Korea as a "core emerging market investment destination," stated in a recent written interview with The Asia Business Daily, "We believe there is ample room for the so-called 'Korea discount' to narrow."

Ting emphasized, "We are focused on South Korea for its combination of global technology leadership, still-reasonable valuations, and a reform story that is gaining traction." She added, "With prowess in semiconductors, shipbuilding, and defense exports as its backbone, the country has been recapturing investor attention as its market has roared back with the AI-driven upcycle." Franklin Templeton, which manages assets totaling around 1.66 trillion dollar, recently highlighted in a report that the Korean stock market is leading the strength in emerging markets and identified Korea as a key investment destination.

Dina Ting, Senior Vice President at Franklin Templeton

When asked whether Korea will continue to drive the emerging market rally next year, Ting responded that while it will be difficult to see the same level of gains as this year, "we believe Korea is well-positioned to remain a leader in the next phase of the EM recovery."

She particularly noted, "At 13.6x forward earnings, Korea still trades at a discount to both developed markets and most emerging peers." She added, "This should be aided by the government's 'Value-Up' reforms to push companies toward higher dividends and better governance, which will help narrow the Korea discount." Currently, the forward price-to-earnings ratio (PER) of the Korean stock market, at about 13.6x, falls well short of not only major developed markets but also the FTSE Emerging Index's forward PER of approximately 16.4x.

Recently, the KOSPI has continued its strong performance, surpassing the 4,000 mark, buoyed by the Lee Jaemyung administration's capital market revitalization policies. However, some foreign investors remain skeptical about the government's corporate governance reforms and related issues. Addressing this, Ting said, "We understand the investor caution and skepticism." She pointed out, "The so-called 'Korea discount' stems from structural factors including the deeply embedded chaebol ownership structures, somewhat limited transparency, and low dividend payout ratios."

She stated, "Strengthening corporate governance and minority-shareholder rights should be top priorities for revitalizing the Korean stock market. Improving capital efficiency through higher dividends and buybacks, as well as encouraging greater participation from domestic investors, are also necessary." She continued, "If these measures move from rhetoric to execution, Korea should evolve from a reform-hope rally to a fundamentally driven re-rating that builds lasting investor confidence," expressing cautious optimism.

Korea's relative strengths, in addition to strong earnings and reasonable valuations, include its expanding global cultural influence and innovation capabilities. Ting explained, "From K-pop and film to gaming and digital technology, its creative industries have amplified Korea's global branding and soft power reach." On the other hand, demographic factors such as a declining labor force and low birth rates were cited as relative weaknesses.

Additionally, Ting identified India and Brazil as other emerging markets that investors should watch at this time. She said, "We see the environment for Indian equities becoming more favorable, supported by the government's new pro-growth policy measures-including the 'GST 2.0' Goods and Services Tax overhaul-as well as by strengthening domestic demand indicators." She added, "We also see Brazil as a compelling market with its export and investment backdrop turning more productive."

Ting, who oversees global index portfolio management at Franklin Templeton, highlighted the IT sector, including semiconductors, as a key focus when managing Korea-related exchange-traded funds (ETFs) or index products. She stated, "IT companies make up the largest weighting in South Korea's broad equity market, having expanded notably since 2015-from about 32% to roughly 41% of the broad market index." She noted, "This reflects the country's global leadership in semiconductors, electronics, and digital components." The industrial sector accounted for the second-largest share at 22%. In contrast, she mentioned that the share of consumer-focused sectors has been gradually declining.

Regarding recent global ETF trends, Ting said, "We have seen strong and growing ETF adoption that appears to be broadening globally." She added, "The core-satellite model is increasingly common, combining low-cost regional core holdings with tactical active or thematic satellites."

She also noted, "The long-standing active-vs-passive divide, in our view, is fading-investors are now using both strategically as part of a barbell strategy to balance cost, access, and targeted outcomes."

This content was produced with the assistance of AI translation services.