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Mobius weighs up investor impact of the Korean crisis

Mobius weighs up investor impact of the Korean crisis

Increased antagonism from North Korea should not faze long-term investors in the market and short-term volatility could even create buying opportunities, according to Mark Mobius.

The veteran investor, who is executive chairman of the Templeton Emerging Markets Group, made the comments in his most recent market commentary.

Mobius currently runs 12 emerging market equity strategies on behalf of Franklin Templeton, including the $116 million Templeton Korea fund.

His investor note comes in the wake of tensions between North and South Korea intensifying in recent weeks following a series of increasingly aggressive statements by North Korean leader Kim Jong-un.

‘As we are long-time emerging markets investors, tensions on the Korean peninsula are not news to us. During crisis periods, market weakness can be viewed as potential buying opportunities, which could be the case in South Korea as we expect there could be periods of volatility,’ he said.

Mobius added if volatility did increase further then he would expect some capital flight, with investors switching from South Korea to other Asian markets but stressed this is not the case thus far.

‘Most foreign investors are well aware of the situation and therefore we don’t believe we’ll see any large scale investor withdrawal from South Korea at this stage, unless things change dramatically for the worse.’

‘Certainly, any increase in tensions on the Korean peninsula could result in some capital moving from South Korea into other markets in Asia, such as China, Japan and Hong Kong.’

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South Korea has been an investment hotspot for some of Franklin Templeton's leading managers in recent years with blockbuster bond manager Michael Hasenstab being a particular champion of the market.

Mobius, who shares Hasenstab’s bullish position, said South Korean government measures on economic growth were a positive many people had overlooked due to tensions with the North.

‘The government recently announced several policy measures to boost the domestic economy, and we think these measures could potentially kick-start growth and have a positive impact on the South Korean market once tensions ease,’ he said.

Discussing other impacts on the South Korean market, Mobius did warn of the potential knock-on effect caused by the expansive monetary policies announced by Japan since Prime Minister Shinzo Abe returned to power.

‘South Korea’s market also bears some risk from further weakness in the Japanese yen.'

'Yen fluctuations can impact South Korea more than some other economies in the region because South Korea competes directly with Japan in the manufacture and export of value-added, high-technology products and machinery.’

Over the past three years, the Templeton Korea fund has returned 5.6% in US dollar terms. This compares to its Citywire benchmark, the MSCI Korea TR USD, which rose 26.8% over the same timeframe.

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