South Korea’s smaller companies are beating larger peers by the most since 2005 as President Park Geun Hye boosts stimulus and promotes entrepreneurship.

The small-cap Kosdaq Index has advanced 15 percent this year, outperforming the benchmark Kospi by 14 percentage points and beating the MSCI Emerging Markets Small Cap Index by 6.5 points through yesterday. Mark Mobius, whose $1 billion Templeton Asian Smaller Companies Fund topped 98 percent of peers during the past five years, has been boosting holdings in Korea and now has more than 30 percent of his fund invested in the country.

While a stronger won and disappointing earnings have dragged down exporters such as Samsung Electronics Co. (005930), Korea’s small-cap companies are gaining from fiscal stimulus and Park’s push to level the playing field with conglomerates. Growth in Asia’s fourth-largest economy will probably accelerate to 3.7 percent this year from 3 percent as government spending rises and lower interest rates support domestic demand, according to forecasts from the finance ministry.

David Fuller's view

Mobius has certainly been successful with his Templeton Asian Smaller Companies Fund. 

However, I would be reluctant to chase it at this time.  It is somewhat overextended relative to its 200-day MA, and while in the past it has remained well above the MA for lengthy periods, sharp corrections eventually occurred.  The next similar event would provide a better opportunity.