KRX claims Korean stocks undervalued against other G-20 members

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South Korean stocks are deemed undervalued against peers of other G20 economies, the Korea Exchange said Thursday in the backdrop of concerns for overshooting and overheating in the Korean market.

According to the Seoul bourse operator, the 12-month forward price-to-earnings ratio (P/R) of Morgan Stanley Capital International (MSCI) Korea Index stood at 15.4 times the future earnings consensus, below 23.7x of the United States, 23.6x of Japan, 16.4x of China, and 16.3x of Germany.

A forward P/R is used to predict the company’s earnings of four quarters later to reflect the market’s optimism for the company’s prospective growth.

The 12-month forward price-to-book ratio (PBR) was also lower at 1.4x compared with 4.0x of the U.S., 2.5x of Taiwan, 2.0x of China, 1.6x of Germany, and 1.5x of Japan.

The trailing P/R of Korea’s blue-chip bellwether Samsung Electronics Co. was at 15.1x, which is significantly lower than those of its competitors Apple Inc. with 33.7x and TSMC with 25.4x.

There is room for an upside in valuation, the operator said, with the benchmark Kospi hitting historic highs lately on the back of growing expectations for corporate earnings.

The Kospi was 1.37 percent lower at 3,106.74 on Friday from the previous session, and the secondary Kosdaq 1.04 percent lower at 970.05.

Based on an analysis of Bloomberg data, Korea’s market capitalization ratio as to nominal gross domestic product (GDP) rose sharply to 130.2 percent, which is slightly higher than the G20 average of 128.7 percent and the United Kingdom of 128.7 percent and China 74.6 percent.

The ratio, however, was lower than that of the U.S. (207.9 percent) and Japan (141.5 percent).

The market value as to M2 money supply, including cash, checking deposits and other near money deposits, was 0.82x – lower than 0.97x of G-20 countries. The figure was lower than the U.S. (2.25x) and the UK (0.91x) but higher than Japan (0.64x) and China (0.34x).

The yield gap, which is the gap between expected rate of return of equity and five-year government bond, of Korean shares was at average level of 5.2 percent to global peers.

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