Joshua Crabb, Head of Asia-Pacific Equities at Robeco Asset Management, stated in an interview that KOSPI's current rally represents a 'de-rating' phase where earnings growth outpaces stock price increases, contrary to typical 're-rating' patterns. The assessment follows KOSPI's record-breaking first-half performance, which saw gains exceeding 100% - surpassing even the 56.99% rise during the 1999 dotcom bubble. Crabb attributed the market dynamics to accelerating earnings forecasts that have compressed valuation multiples even as stock prices doubled, creating a valuation environment opposite to U.S. markets where earnings lag behind price appreciation. The analysis comes amid heightened investor focus on artificial intelligence stocks and Korea's ongoing Value-Up corporate governance initiatives aimed at reducing the 'Korea discount' in equity valuations.
Robeco Executive Explains KOSPI De-Rating Assessment Despite Price Doubling
Crabb explained that Korean stocks remain undervalued despite the doubling of stock prices because earnings projections have grown even more rapidly. "The price-earnings ratio rose from 12x to 15x, but subsequently the market became cheaper again as earnings forecasts surged," Crabb stated. He characterized the current phase as de-rating rather than re-rating, noting that "this is the opposite of the U.S. where earnings are not keeping pace with stock prices."
The Robeco executive, whose firm manages nearly $400 billion in assets across 13 countries, emphasized that expensive stocks face larger downside risks when earnings disappoint, while already-cheap stocks only require assessment of how much earnings might decline. He cited TSMC as an example of a company that underwent re-rating as its business cyclicality decreased.
Regarding portfolio positioning, Crabb stated there is no reason to reduce Korean stock allocations, though he acknowledged it may be appropriate to take profits and reinvest in overlooked sectors. He identified industrials, telecommunications, and financials as sectors retaining valuation appeal.
Korea Value-Up Policy Effects Tied to AI Rally Cooling Timeline
Crabb addressed perceptions that the Korea discount persists despite capital market advancement policies, stating that structural market changes do not occur in the short term. "Right now all attention is focused on AI, pushing shareholder returns like dividends and buybacks to the background," he explained.
The asset manager predicted that once AI overheating subsides, investors will return to seeking companies actively engaged in shareholder returns. He assessed that beneath surface appearances, corporate attitudes toward shareholders have definitively changed, noting that dividend increases and share buybacks are not ending as one-time events, and even companies with complex succession considerations are shifting toward shareholder returns.
Crabb recommended Southeast Asia, India, telecommunications, and healthcare as promising investment areas currently overshadowed by the AI rally, suggesting these markets could present opportunities when AI stock momentum weakens.
High-Leverage Products Carry Gamma Risk for Non-Professional Investors
Crabb expressed clear concerns about high-multiple leveraged investments that have participated in the current rally. "The price of the underlying asset and the actual profit and loss of derivatives can move separately," he stated, adding that "unless you are among the very small number of professional investors who understand gamma risk in leveraged structures, high-multiple products are a bad choice for the majority."
The investment executive emphasized that investors should only use money they can afford to lose, select products appropriate to their circumstances, and invest gradually and consistently over time. "When markets go to extremes, people get sucked in," Crabb cautioned, concluding that "if you invest slowly and steadily with money you can afford to lose in products suited to your situation, investing can become one of the best things you can do in life."
FAQ
What does Robeco's assessment mean for KOSPI investors?
Robeco's Head of APAC Equities Joshua Crabb characterized KOSPI's rally as a de-rating phase where earnings growth exceeds stock price increases, compressing valuation multiples even as prices doubled. He stated there is no reason to reduce Korean stock allocations, though profit-taking to reinvest in overlooked sectors may be appropriate, with industrials, telecommunications, and financials identified as retaining valuation appeal.
Why does Joshua Crabb believe Korea Value-Up policy effects are delayed?
Crabb explained that structural market changes do not occur in the short term, and current investor attention remains concentrated on AI stocks, pushing shareholder return initiatives to the background. He predicted that once AI rally momentum cools, investors will return to seeking companies with active shareholder return policies, at which point Korea Value-Up policy effects will become more visible.
What investment risks did Robeco highlight for retail investors?
Crabb issued specific warnings about high-leverage derivative products, stating that underlying asset prices and derivative profit-and-loss can move separately, and that gamma risk in leveraged structures is understood only by a very small number of professional investors. He advised that high-multiple products represent a bad choice for the majority of investors and recommended using only money one can afford to lose, selecting appropriate products, and investing gradually over time.
