Asian markets undervalued relative to Europe and the USA. Interest in South Korean equities

The "Korean Value up Program" is expected to accelerate further during 2025. Asian equity markets remain attractive and, compared with Europe and the USA, are historically undervalued.

by Marcel Zimmermann, manager of the Lemanik Asian Opportunity fund at Lemanik

The political chaos triggered in South Korea by President Yoon Suk Yeol’s declaration of martial law, and his subsequent arrest, prompted heavy foreign selling in December. We believe the political parties will resolve the crisis using the democratic tools available. Once the arrest is confirmed, the court has 20 days to set out the offence. The Corruption Investigation Office for High-ranking Officials (CIO) will conduct the investigation, focusing on the allegations of insurrection and abuse of power relating to Yoon’s declaration of martial law. This situation will continue to affect investor/consumer sentiment. Even so, the Korean market has the most attractive fundamental valuations in Asia, and we expect the "Korean Value up Program", which aims to lift domestic share valuations, to accelerate further during 2025.

Artificial intelligence remained a key strength of Asian equities, and the technology indices in Taiwan and Japan performed very well in December. Japanese equities climbed to a four-month high thanks to stronger industrial production data and a weaker yen. Geopolitical uncertainty in Asia increased as investors waited to see the moves of the new president of the United States. The Bank of Japan did not raise interest rates in December, as some analysts had expected. The yen fell 5.4% in December and ended the year as one of the major currencies weakest against the greenback. Chinese and Hong Kong stocks, finally, continued to benefit from the five-year $1.4 trillion package announced in November to support the restructuring of local government debt.

During the month we slightly reduced exposure to Thailand and Indonesia in favour of Japan. We, on the other hand, maintained our overweight exposure to South Korea. We expect interest in the theme of artificial intelligence to continue in 2025, and therefore we expect technology to remain favoured by investors. The US dollar will remain an important variable for emerging markets sentiment, and we expect investors to wait for further guidance on President Trump’s political and tariff agenda for Asia. Asian equity markets remain fundamentally attractive and, compared with Europe and the United States, are historically undervalued.