Norm Boersma, who manages $30 billion as chief investment officer for Templeton Global Advisors Ltd., isn’t buying the optimism surrounding the historic summit between the two Koreas this week.

North Korea and its southern neighbor may formally declare an end to a war that’s been going on for almost seven decades, but that’s not changing Boersma’s view on South Korean stocks. Templeton has gradually reduced its allocation to the market, and any rally would only give Boersma reason to trim more, he said. He currently has less than 4 percent of assets in the country’s equities, down from a peak of 6 percent a few years ago.

North Korean leader Kim Jong Un is scheduled to meet his southern counterpart Moon Jae-in on Friday in Panmunjom, where the 1953 armistice was signed. It’s the first leadership summit between the two countries in 11 years. Separately, Kim pledged over the weekend to suspend tests of atomic bombs and intercontinental ballistic missiles, a move that U.S. President Donald Trump initially hailed as “great progress.”

“We need to be a bit cautious,” Boersma said in an interview during a visit to Tokyo. “It’s all positive, but it’s still early days. All we’re doing at this point is talking. There hasn’t been anything concrete put in place.”

Templeton’s reduced appetite for South Korea has a lot to do with Samsung Electronics Co. and the weakened outlook for the global technology sector, according to Boersma. The money manager has been cutting back on technology heavyweights since late last year, he said. The sector’s weighting in its global portfolio could "easily" slip further to the "high-single digits," Boersma said.

Samsung’s shares have fallen 17 percent from a high in January, while the Philadelphia Semiconductor Index slid for a fourth straight day Monday for a total decline of 7.6 percent, amid lingering concerns over slowing demand. Chipmakers have been suffering on reports of weaker-than-expected interest in Apple Inc.’s new iPhones.

“Not only Samsung, but we’ve had good-sized weightings in other technology stocks,” Boersma said. “We’ve been trimming back in all of those, and it’s just a reflection of valuations relative to our expectations of growth.”

Prices in the technology sector have increased “dramatically” and it’s a “logical” decision to cut back on these companies and invest in cheaper stocks, according to Boersma. Templeton has been buying pharmaceutical shares instead, because they’re more resilient to economic cycles, he said.

‘More Defensive’

“In general in the portfolios, we’re getting more defensive,” Boersma said. “The world is growing very uniformly, it’s growing everywhere. Valuations in equities have really moved up because of that,” he said. “So there’s less opportunity there and, logically, as interest rates rise, which is starting to happen, you are on the risk that at some point in time you have an economic slowdown again.”

This week, the 10-year Treasury yield reached its highest level in more than four years. U.S. Federal Reserve minutes released earlier in April showed officials leaned toward a slightly faster pace of policy tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened.

The Templeton Growth Fund, the largest managed by Boersma with $13.4 billion in assets, is down 0.2 percent this year, matching the decline in an index of global equities. It’s returned 7.3 percent per year over the past five years, beating 61 percent of peers, according to data compiled by Bloomberg.

Templeton is underweight in the world’s largest equity market, owing partly to the importance of technology stocks in the U.S. Boersma says Trump’s repeated rhetoric over protectionist policies and the ongoing investigation led by Special Counsel Robert Mueller has further soured his interest in American equities.

“The risk in that whole thing is that the U.S. market isn’t cheap,” Boersma said. “We are really underweight the U.S., that’s probably a good thing. The risk isn’t to the upside, it’s to the downside.”

Source:
courtesy of BLOOMBERG

by Min Jeong Lee, Keiko Ujikane , and Toshiro Hasegawa

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