Franklin Templeton Sees Kospi at 3,000, Unfazed by Missiles

(Bloomberg) -- North Korea’s renewed missile threat won’t stop Seoul’s benchmark stock index from rising more than 25 percent in the next two to three years, provided that there’s peace, Franklin Templeton Investments said.

The company, which managed $744 billion as of end-May, predicts the Kospi will reach 3,000 as technology companies including Samsung Electronics Co. continue to lead the gauge higher, according to JJ Kang, head of equities at Franklin Templeton Investment Trust Management in Seoul. The North fired an intercontinental ballistic missile on Tuesday, spurring the Kospi’s steepest drop in three weeks on concern the totalitarian state crossed a line that may draw a U.S. response. The index gained 0.3 percent to close at 2,388.35 on Wednesday.

“Unless there is a war, there won’t be any major change in markets,” Kang said in an interview on Tuesday, after North Korea announced the missile was an ICBM. “Political and economic issues should be dealt with separately.”

Franklin Templeton remains bullish even as foreign investors were net sellers of South Korean stocks on Tuesday and dumped 2.7 trillion won ($2.4 billion) worth of the nation’s debt on a settlement basis on July 3, the biggest single-day outflow since at least 2011. The bond selloff may have been led by Franklin Templeton, according to a note by Seung-Won Kang, an analyst at NH Investment & Securities. The U.S. fund on Tuesday declined to comment on the report.

The Kospi is still up almost 18 percent this year as improved corporate governance, higher dividends and earnings growth have attracted $15 billion of foreign funds this year, the biggest inflow in the region after China. Earnings reached a record high during the first quarter with shares on the Kospi trading at about 10 times 12-month forward earnings compared with almost 13 times for the MSCI Emerging Markets Index. The won has strengthened more than 5 percent against the dollar this year.

“The Kospi is still about 20 percent cheaper than other emerging markets,” Kang said. “If earnings continue to meet expectations and sentiment on Korea markets is improved, under the current pace, it’s not a burden for the index to reach 3,000 points within two or three years. For this year? It would not be a problem to reach about 2,520.”

To contact the reporters on this story: Heejin Kim in Seoul at hkim579@bloomberg.net, Kyoungwha Kim in Hong Kong at kkim19@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Jonathan Annells