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* HSBC's Asia-Pacific CIO says reform agenda has reinforcedconfidence in China
* Favours China's industrial sector stocks, says consumerstocks pricey
* Concern of weaker yen hurting Korea's economy was"massively overblown" (Adds quotes, context, video link)
By Nishant Kumar
HONG KONG, Nov 18 (Reuters) - HSBC Global Asset Managementexpects emerging market stocks to play catch-up with those indeveloped economies, with China's relatively cheaper shares wellpositioned to lead the rebound.
Bill Maldonado, chief investment officer in Asia-Pacific forthe $419 billion money manager, said China's reform agenda hasreinforced his confidence about investing in the second-largesteconomy. He also favours cheap South Korean shares.
Emerging market shares have underperformed this year assigns of economic recovery in the United States have shiftedinvestor focus to developed markets.
"Valuations and profitability are very good in emergingmarkets and right now developed markets are looking pretty fullyvalued," Maldonado, 50, told the Reuters Global InvestmentOutlook Summit in Hong Kong on Monday.
Maldonado said that while China's consumer sector shareswere expensive - and got more pricey after a rally on Mondayfollowing the reform announcement on Friday - industrial sectorstocks offered the best opportunities because of theirrelatively low valuation.
He said China would lead a rotation into emerging marketstocks because "it's one of the cheapest emerging markets in theworld, and it's one of the most profitable."
The S&P 500 Index is up 26 percent this year.
The stock benchmark indices in emerging markets such asBrazil, China and India have declinedthis year in U.S. dollar terms. They all trade at a discount tothe more than 16 times forward 12-month earnings for the S&P500.
There "will be a degree of catch-up," as investors wereturning more confident about the global economy.
"We were all very concerned about China 12 months ago, muchless so now, especially after the third plenum last week," saidMaldonado, who left an academic career in laser physics for thefinancial industry nearly 20 years ago.
He said investors may have got too optimistic about thelevel of detail they would receive following the four-dayconclave of senior leaders of the Communist Party, but "the bigand strong determination to reform" is clear in China.
While it doesn't change the picture immediately, he said thepush was a "fantastic opportunity for investors."
The HSBC GIF Asia ex-Japan Equity fund invested just over athird of its assets in the shares of China- and Hong Kong-listedcompanies as at September-end. All of the fund's top 10 holdingswere North Asian companies, a fund factsheet showed.
The fund's portfolio was led by Korea's Samsung ElectronicsCo Ltd, Taiwan Semiconductor Manufacturing Co Ltd and China Mobile Ltd, the factsheet showed.
Maldonado, who gained a PhD at Oxford University, said hisfirm was also heavily invested in South Korean shares with hisAsia fund investing a fourth of its assets into them.
He said Korean shares were unduly punished after the yenweakened against the dollar but many of them continue to enjoy amarket-leading position.
Citing one example, he said the sum of market value of everyJapanese electronics company is less than the value of SamsungElectronics alone.
"People's concerns about the ability of a weaker yen toboost the Japanese and hurt the Korean economy were massivelyoverblown. It just hasn't happened," he said. (Follow Reuters Summits on Twitter @Reuters_Summits; Reportingby Nishant Kumar, Michael Flaherty and Elzio Barreto; Editing byChristopher Cushing)
