Dickson cuts Korea over weakening yen

Invesco Perpetual’s Tim Dickson is cutting his exposure to Korea for fear it will be hit harder by the weakening Japanese yen than other markets in the region.

Mr Dickson, who manages the group’s £19.5m Asian Equity Income fund with Stuart Parks, said South Korea’s export-focused economy may feel the pressure as Japan moves to weaken its currency.

His comments follow the bumper stimulus package introduced by the Bank of Japan, which includes doubling the money supply.

If the Japanese yen weakens it means the cost for overseas buyers of Japanese products becomes cheaper. Because Japan and South Korea compete in many similar industries, Mr Dickson said Korea was likely to be affected.

“Korea will be shoved down further,” he said.

“You have to be careful not be too aggressive in reducing exposure but there will be better opportunities elsewhere in the coming year or so.”

The manager said he had already sold his position in Korea-based Hyundai Home Shopping in March and was also likely to reduce his exposure to a Korean bank he owns.

Mr Dickson said Korea faced the biggest problem with a weaker Japanese yen because it “competes head-on” with its neighbour.

Neighbouring countries in the Association of Southeast Asian Nations such as by Indonesia, Malaysia, the Philippines, Singapore and Thailand, tended to focus on other export markets, he added.

But the manager said some Korean stocks, such as technology giant Samsung Electronics – the manager’s top holding – still possessed value in investors’ portfolios.

Elsewhere, the manager said he was set to change the blend of his financials exposure by reducing his weighting in more defensive real estate investment trusts (Reits) and into more cyclical holdings, including banks.

Mr Dickson said Reits were predominantly an income play and because of investors’ thirst for income the prices of the trusts had been bid up, in turn reducing the yield.

“In the majority of cases Reits are not developers but are linked to mature assets,” he said. “They are pretty low risk except if interest rates go up, which is something that would impact them.”

The manager said this was not an “immediate” concern, but rates were at low levels meaning they were more likely to rise than fall.

Mr Dickson said a rising rate environment would be good for banks, in which he is underweight by roughly 10 per cent compared with the MSCI AC Asia Pacific ex Japan index.

“We are very much of the view that we are at the bottom for rates in Asia,” he said.