Invesco Korean Equity and Lion Global Korea were in positive territory with returns of 20.5% and 6.3% respectively.
During the same period, indicies were in negative territory. The KOSPI (-2.63%), FTSE Korea (-2.84%) and MSCI Korea (-3.36%) reflected the stock market’s weakness.
Invesco Korean Equity also outperformed all others in the category in the three-year time frame with a 14.2% return.
The Invesco fund has a bias toward consumer growth-oriented companies, which are exposed to the domestic economy.
Consumer staples and consumer discretionary sectors together make up 47% of the fund’s weighting.
A domestic market sell-off in the third quarter has sent the fund house looking for companies outside the KOSPI index, which “is dominated by several mega-cap franchises with economically-sensitive earnings attributes,” said Simon Jeong, who has managed the fund since 2006, in a note to clients.
The market sell-off has lowered valuations.
“The South Korean stock market is trading at a single-digit forward price-to-earnings ratio of 9x – one of the cheapest valuations among Asian countries,” Jeong wrote.
Some of the market weakness is likely due to currency issues. In a recent report, Fitch Ratings noted that the depreciation of the Japanese yen has impacted on Korea’s exports. Japanese companies compete closely with Korean corporations, and now Korean exports are comparatively more expensive.
“The slowdown in growth in China, together with its macroeconomic risks, may also add to the challenges for Korean export growth over the medium term.
“Korea’s policy emphasis on fiscal stimulus, supporting lending to SMEs and easing prudential regulations on home purchases, should help to provide a cyclical uplift to the economy,” the ratings agency said, but cautioned that the country faces structural issues, not cyclical ones.
“Household debt which is already high — 85% of GDP at end-June 2014 — means there are risks of a self-reinforcing weak growth scenario over the long term where slow real wage growth hampers domestic demand, in turn affecting business investment and banks’ willingness to lend,” the ratings agency said.
The two oultliers are the ones reporting positive returns.