South Korean stocks are beating bonds by the most in six quarters as foreign investors buy shares at the fastest pace on record and accelerating global economic growth increases the chances of monetary tightening. The Kospi index has added 7 percent since the end of June, compared with a gain of less than 0.1 percent in Bank of America Corp.’s index tracking the nation’s sovereign debt, the biggest gap since the first quarter of 2012. While overseas money managers withdrew $1.9 billion from debt in August, equities lured inflows in the past five weeks, including a record $3.6 billion last week. The Kospi is valued at 1.1 times net assets, a 47 percent discount versus the MSCI All-Country World Index. Samsung Inflows Samsung Electronics Co., the world’s biggest smartphone maker, attracted $2.05 billion of inflows during the period and SK Hynix Inc., the second-largest computer-memory chipmaker, lured $573 million, according to data compiled by Bloomberg. Profit Growth The benchmark equity index will probably leaped to as high as 2,200 by the middle of next year, a 10 percent gain from its closing level on Sept. 13, according to Kwon Goohoon, a Seoul-based economist for Goldman Sachs. Fed Taper The U.S. central bank will cut monthly Treasury purchases to $35 billion from $45 billion while maintaining mortgage-bond buying at $40 billion, according to the median of 34 responses in a Bloomberg News survey of economists on Sept. 6. That pace was unchanged from an Aug. 9-13 poll, as was a projection that the program will end in June. The Kospi has rallied 106 percent since the Fed’s first round of bond-buying in 2008. BlackRock Outlook While the Bank of Korea held its key interest rate at 2.5 percent for a fourth straight month last week, Goldman Sachs estimates the central bank will increase the rate to 3 percent by the end of 2014. The economy will expand 2.8 percent in 2013 and 4 percent next year, which would be the fastest pace since 2010, according to central bank forecasts. “We have been holding a conservative view on the bond market and have moved to bonds with shorter maturity,” Kim Ki Hyun, head of the fixed-income investment division at Woori Asset Management Co., said by phone from Seoul. Quicker global growth is boosting the sales outlook for South Korean companies, according to BlackRock Inc., the world’s largest money manager. Service industries in the U.S. expanded in August at the fastest pace in almost eight years as a pickup in demand encouraged companies to increase hiring, the Institute for Supply Management said on Sept. 5. “Korean exporters are benefiting from global growth,” Marc Desmidt, the head of alpha strategies for Asia Pacific at BlackRock, which oversees about $3.8 trillion, said in a Sept. 11 interview on Bloomberg Television. “If that continues that will be very good for them.”
