Companies should increase their dividends if Korea wishes to activate its stock market and attract foreign investments, according to Baring Asset Management.
The London-based investment management firm also predicted that the U.S. Federal Reserve will hike its key rate in the second quarter this year, possibly in late May or June.
“Once foreign investors are convinced that Korean companies have decided to expand their dividends, the local stock market will turn bullish,” said Khiem Do, head of the company’s Asian Multi-Asset, in a news conference on Thursday.
He then took the example of Japan, which pledged to increase shareholders’ dividends but failed to execute the plan.
The increase of dividends is not just about boosting the shareholders’ benefits but also about improving the companies’ governance structure, which will consecutively attract investors, according to the company.
“When a company ups its dividends, this will simplify the governance structure, boost management transparency, and eventually reduce the so-called Korea discount,” said John Park, CIO of Barings Korea.
“Recently, leading players such as Samsung Electronics and Hyundai Motor have announced plans to increase dividends, a trend which will hopefully spread on to the entire industry.”
The U.S. rate hike is likely to take place in late May or June, not as early as April, officials said.
“The U.S. economy is continuing its sustainable growth so the hike will happen for sure, probably within the first half of the year,” Do said.
“But the change will not be very aggressive, probably 0.25 percent in margin, considering (the Fed chair) Janet Yelen’s conservative stance.”
Both officials said that investors should not worry too much about the recent fall in oil prices, as it was more of a political decision rather than economic.
“The Middle East oil-producing states temporarily reduced their supply in order to hold back the U.S. shale gas business,” said Do.
“Once the conflict is over, the oil prices will soon recover to their conventional level of $70-75 per barrel.”
