What factors make global banks bullish on South Korean and Taiwanese stocks?

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Factors Driving Global Banks' Optimism on South Korean and Taiwanese Stocks

Global financial institutions are expressing a positive outlook on South Korean and Taiwanese equities, primarily anticipating a resurgence in the semiconductor industry to propel market gains in the upcoming year. This optimistic stance is underpinned by several key factors, including attractive valuations, currency movements, and expectations of recovering demand, particularly from China.
Anticipated Semiconductor Sector Recovery

A central theme driving the bullish sentiment is the projected recovery in the semiconductor market. DWS' Asia-Pacific chief investment officer, Sean Taylor, specifically noted that semiconductor demand is expected to reach its lowest point in the first quarter of next year, with markets typically beginning to rebound in anticipation of this bottoming out. This outlook suggests that companies heavily reliant on semiconductor production, prevalent in both South Korea and Taiwan, are poised for a turnaround.
Favourable Valuations and Currency Dynamics

Valuations in South Korea are considered low, a situation exacerbated by a depreciating Korean won, which makes the stocks even more attractive in dollar terms. Goldman Sachs, for instance, forecasts a potential 30% return for South Korean stocks in 2023, citing these low valuations and currency movements as key drivers. Similarly, Taiwan, another market dominated by chipmakers, has experienced significant selling pressure, leading to potentially undervalued assets. Analysts suggest that a substantial portion of geopolitical risks for both South Korea and Taiwan is already reflected in current market prices, limiting further downside.
Expectations of Renewed Demand and Foreign Interest

The anticipated recovery in Chinese demand is another significant factor contributing to the positive outlook for South Korean and Taiwanese stocks. Morgan Stanley views both markets as "early-cycle" leaders, well-positioned to benefit from a broad demand rebound. Furthermore, there are indications of renewed foreign investor interest. In South Korea, foreign ownership of stocks has reached its lowest point since 2009, but recent inflows since the end of June suggest a potential shift, with approximately US$6 billion entering the market, signalling a turn in foreign sentiment.

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What factors make global banks bullish on South Korean and Taiwanese stocks?

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