Federated Hermes: Weekly Markets Wrap Up
Federated Hermes: Weekly Markets Wrap Up
In this week’s markets wrap‑up, our investment teams unpack South Korea’s governance‑led equity rally and explain why episodes of geopolitical‑driven volatility may create opportunities for investors in an otherwise constructive outlook.
Jonathan Pines, Head of Asia ex-Japan at Federated Hermes Limited
South Korea's Kospi index surpassed 5,000
We attribute about half the gain in Korean stocks to governance reforms. However, the dynamic at play is that new capital attracted to Korea (likely because of the reforms) has been focussed on themes that are doing well globally such as memory and AI, defence, stockbrokers which are high beta plays on a rising market, heavy engineering and lately robotics.
Governance reforms have attracted capital to South Korea, but that capital has been directed at the sectors that are popular globally rather than at reform beneficiaries in particular.
We believe the rally will continue because the market remains cheap relative to other global and large Asian markets such as India and Taiwan. The reform theme in South Korea is far from exhausted and we expect news flow to be positive.
Swathes of the market have been left behind, including primary beneficiaries of governance reforms. For example, mid cap and small cap companies – potentially the biggest beneficiaries of the reforms - have done relatively poorly.
Such companies, often trading on price-to-book multiples below one, cash rich, on low payout ratios and with high levels of treasury stock and will thus be disproportionate reform beneficiaries.
Other potential key future beneficiaries include the holding companies that still trade at discounts of up to 40% or more to the sum of their parts, and those companies hovering near (but below) the payout ratios that qualify for new tax incentives - as these companies could easily meet the new requirement by slightly upping payout ratios.
Damian McIntyre, Head of Multi-Asset Solutions at Federated Hermes
Volatility as Opportunity
Geopolitical headlines can often create short-term volatility in the market, which can create fear and confusion for investors. It is important to discern whether a headline could impact long-term economic growth, or if it is merely noise.
While the tariff threats over the weekend certainly meet the former’s criteria, we learned in 2025 that the Trump administration often uses tariffs as a leveraging tool for negotiating. The 2026 US market has the potential for both a strong economy and strong earnings, therefore we look at periods of volatility as an opportunity to increase equity allocations.
We are focused on a broadening out rally for 2026, with an equity overweight in Large Value and Growth, Small Value and Growth, and Emerging Markets.