By Reshma Kapadia

The conventional wisdom would be to fade a red-hot market like South Korea and look for opportunities in a market that has lagged, like China. But Sean Taylor, Matthews Asia's chief investment officer, doesn't see it that way.

Taylor sees gains ahead for Korean stocks, even after the 100% rise in the Kospi Composite index driven by Samsung Electronics and SK Hynix. He is less excited about China, even though the MSCI China index is down 8% year to date, and the internet giants like Alibaba Group that U.S. investors tend to favor.

The Hong Kong-based Taylor also is a fund manager at Matthews Asia, which oversees $7 billion. Barron's spoke to him to find out where he sees opportunities in Korea, what popular Chinese stocks he has "never been less interested in," and how he thinks about the risk around Taiwan after Chinese leader Xi Jinping warned President Donald Trump that mishandling issues around the island could lead to a conflict.

South Korean stocks have surged. Do you see further gains still?

I do. Earnings drive prices and some of these [chip] companies are trading at six to seven times earnings, incredibly cheap, particularly compared with the U.S. I am worried about positioning because the sector [stock chart] has gone vertical.

The key question: Is this a cyclical or structural trend? If the latter, valuations should be at 12 to 15 times so [stocks] could go up 100%. If it's cyclical, then surely you sell a stock with high earnings and low P/E.

[The run] probably has another 18 months to go but isn't structural. Something else will come in and compete. Maybe the Xi-Trump relationship, with another meeting in September, [improves]. If the relationship between Nvidia and China changes, that means there is an alternative to the Korean [chip makers].

Is there opportunity beyond chips?

The most potential in Korea is in industrials. We are probably unlikely to see Americans and NATO buying ships and other strategic things from the Chinese. That puts the Japanese and Koreans in good position.

Ultimately, everyone is going to increase military spending and there's the rebuild of the Middle East. Whether it is nuclear, shipping or electric motors the industrial side of Korea is interesting.

More broadly, one of the key drivers is a change in Korea's national pension service policy. It had been investing money internationally and now is investing more locally.

China's market has lagged and Beijing recently penalized brokers that let mainland investors buy stocks abroad. Is that a flag for investors?

You never know if it was politics. The Hong Kong stock exchange has said 450 companies [are preparing] initial public offerings. Recently, local governments have been in on IPOs. Regulators in China are being cautious: They want the market to rise but not so quickly and are trying to control the leverage in the IPOs.

One thing we were worried about internally [this spring] was [talk of] a tax on overseas earnings that could affect e-commerce companies -- the Meituans and Didis of the world. Another reason we turned negative on e-commerce companies: Why do they have to go abroad? China is the biggest market in the world. Why are they going into the Middle East or Brazil, which has 1.8% GDP? China is slowing but growing at 4%!

China's economy has been sputtering for a years, with consumers especially reluctant to spend, hurting some of those companies. What changes that?

The priority of China is really self-sufficiency and upgrading technology. The problem: It doesn't create jobs now. The Chinese government follows an economic hardship index. Each time it's low, they help a section of the economy. There have been signs recently the government wants banks to lend more, but people have to want to borrow. It's going to take time.

What does that mean for Chinese stocks?

The best thing you can say about large-cap China is that it's lagged behind. The consumer is still under pressure and so are the internet platforms, which are big in the index.

I've never been less interested in the BATs trade [ Baidu, Alibaba, Tencent]. These were values 18 months ago but now aren't incredibly cheap and earnings expectations are still being downgraded.

The Xi-Trump summit removed a geopolitical cloud near-term but do curbs on the market rattle investors?

Absolutely. There are some areas we can still be interested in: AI-related mid-caps, including battery companies, select exporters, dividend stocks among financials and insurers, and Hong Kong property stocks.

If the odds improve of China moving toward a peaceful reunification with Taiwan -- perhaps a Hong Kong like situation -- rather than a forcible seizure, does that lower the geopolitical penalty for Taiwanese companies?

100%. The more we have less tension between U.S.-China, the less likely something in the Strait escalates, and that would lower [the risk]. I've always thought the Taiwanese are a calm nation, which wants to talk about independence but not go as far as want it -- and that anything going forward would be peaceful.

That said, I don't think there is a geopolitical risk premium in Taiwan stocks at the moment. There was last January before elections [in Taiwan], but now Taiwan is more expensive than Korea by 2.5 times, with not as high earnings. We are selectively taking some profits.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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May 31, 2026 02:00 ET (06:00 GMT)

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