Did Korean Chaebol Follow This Advice Given 2.5 YEARS AGO?

Posted on June 6, 2013 by thelostseoul

Somehow, I Doubt It
http://www.seoulgyopoguide.com/?p=482

Academics Are Now On Board
In Korea, the Samsung Economic Research Institute is probably the most well-known and highly-regarded economic think tank. A guest post recently appeared on FT’s blog, which suggests that the Yen’s decline has not yet hit Korea. I would totally disagree with this. The disruption is here, the result is global volatility, equity markets are higher than at any point over the past year, the KOSPI is flat at best. On the flip side, there are those that would have borrowed in JPY from Korea, and they will benefit (like plastic surgeons), or real estate investors. To what extent they have benefited is unknown, but it is there.

Easy Path is Over for the Bank of Korea
The conundrum facing the BOK has now shifted to politics. Economically, the BOK has no choice but to lower interest rates, devaluing the Korean Won, to help boost exports. Period. The rest must take a backseat, if it believes that the chaebol cannot compete on the global stage. Real estate may be helped, although only marginally (this blog has said that this boat has sailed for 3 years, and it has proven to be true). Inflation will rise, and that must be met with much better internal distribution of final goods. There are too many intermediate channels before final products meet Korean consumers, whether this is a computer or a Korean pear. It is highly unlikely that the Japanese will ease up on its current program of weakening the Yen. The Japanese had to wait because the Yen carry trade was too strong during the time of the financial crisis, and this is the first window of opportunity. That doesn’t mean that this will work (you can read the many posts that explain how the Japanese economy is in inexorable, structural decline). The net effect? It is back on the BOK, again. As in the U.S., the Korean president is the face of the nation. As in the U.S., the economy depends almost entirely on the central bank, its posturing, and its policies. That is the world in which we live for the forseeable future. In that sense, Korea has arrived as a true companion to other global economic powers.

Posted in $JPY, $KRW, Bank of Korea, Korea, Korean Economy, KOSPI, USA | Leave a comment

This Just In: Korean Peninsula Isn’t Going To Be War Theatre

Posted on June 6, 2013 by thelostseoul

And Now…N Korea Proposes Reopening Kaesong Complex

So I guess war isn’t imminent. On Voice of America (you should follow @W7VOA on Twitter for the best information on Korea), it was probably said best when it said “The closer you are to the Korean peninsula, the less fearful you are of imminent war.” I wonder if anyone was paying attention. In any case, it appears that Kim Jong-Un has satisfied whatever internal challengers he faced. As long as there is no military accident (i.e. accidental war is possible when armies are this close to each other), it continues to be very, very unlikely that the Korean War will be engulfed in a full-scale war. So while the civilian drills will need to occur (I wonder if this was to help Kim Jong-Un “See I made Seoul blink,”), the central thesis of this blog continues: China, the U.S., Japan have other problems and interdependencies which are too large to allow a total diplomatic breakdown which would lead to full-scale war.

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The Lost Seoul to Detractors: The Yen Taketh Away

Posted on May 15, 2013 by thelostseoul

S&P is way up, but the JPY is keeping the KOSPI flat at best

Popular Press Has Caught Onto What Readers of this Blog Already Know

I receive a fair amount of ridicule from readers that have said that my observations regarding the JPY/KRW rate was a gift to Korea.  it was a gift that certain chaebol have used to build their competitiveness on the global stage.  However, that advantage is now gone: the KRW/JPY rate has returned to its pre-financial crisis levels.

The Bank of Korea Had No Other Choice

The previous posts here suggested that the BOK had to act, and fast.  And they have.  Lower interest rates was the only choice that the BOK had.  There will be limits to the amount of flexibility available to the BOK.  It appears that we will learn how much progress the Korean economy has truly made.

Posted in $JPY, $KRW, Japan, Korea, Korean Economy, KOSPI | Leave a comment

Tale of Three Pictures: Nikkei, KOSPI, and JPY/KRW

Posted on March 13, 2013 by thelostseoul

Toldya

This blog has taken some grief for its analysis regarding the Korean Won, the Japanese Yen, and the fact that Korean chaebol have done well in no small part due to the incredible Yen strength.

Let’s take a look, shall we?
The KOSPI hasn’t moved over this last two years.
Chart forKOSPI Composite Index (^KS11)

Now, this is the Nikkei (Japanese stock market), which is now at a 5-year high.
Chart forNIKKEI 225 (^N225)

And now, the punchline:  this is the KRW/JPY exchange rate.  The lower the number, the stronger the Korean Won, compared to the Japanese Yen.
Chart forJPY/KRW (JPYKRW=X)
The short story:  both economies are export-driven.  We can all say that LG/Samsung have left Sony in the dust, and that is true in LCD TVs.  However, this blog has reasoned that LG, Samsung and a few others have used the favorable exchange rate to make great profits, and use those funds for research and product development.  For Hyundai Heavy, POSCO, and other Korean companies where technological advancement is not the key input, the story will be more difficult.  The market agrees.  Don’t be surprised if we start seeing headlines over the next year that suggest that Toyota/Honda are growing while Hyundai/Kia are not.  We will see on that.

Dear Everyone, Double Toldya.  Signed, Bank of Korea.
Let me be clear: the Bank of Korea deserves an A-PLUS.  Look throughout this blog.  This should be no secret to the many readers of this blog.  The Bank of Korea has managed a very delicate situation, has used its rights to withhold premature judgement, and has acted to the benefit of the Korean economy and its citizens.  It has been, at certain times, lucky.  The Japanese Yen has been too strong for too long, for reasons that could not sustain themselves forever.

Now, the ball is dramatically back into the Bank of Korea’s court.  Instead of being passive, and waiting, it may actually need to lower rates.  It is the one instance when the domestic real estate situation (which must be called a small disaster) calls for it, and to weaken the Korean Won for the benefit of Korean chaebol.  Now, that doesn’t mean that the previous criticisms of the chaebol as written here are any different.  While Samsung Electronics, LG, and Hyundai/Kia have used the weak Won to enhance themselves tremendously on the global stage, other Korean chaebol have not.  So while this may seem like it is rewarded those unproductive chaebol, in a land of corporate governance and societal issues, the fact is that the Bank of Korea may need to move.  And soon.

 

Posted in $JPY, $KRW, Bank of Korea, Japan, Korean Economy, KOSPI | Leave a comment

SK Global: Is the Tide Turning on Corporate Governance in Korea?

Posted on February 17, 2013 by thelostseoul

Do Not Pass Go.  Do Not Collect $200.
SK Group now-ex-chairman Chey Tay-Won was convicted of embezzlement and ordered directly to jail for 4 yours.  Just wow.  This blog has reported and comment on this issue, many times, in the past.  This isn’t the first time that this has happened in Korea, nor is it the first time that Mr. Chey and SK has become familiar with the Korean penal system.  In fact, the amount of money embezzled is small in scale compared to the past infraction of huge accounting abnormalities at SK Energy, for which  Mr Chey has served a 1 year jail sentence.  It is a little-known fact that the Korean government chose to not prosecute Mr Chey to the fullest extent possible at that time; the most -likely reason is that the government believed that the Korean economy was too weak to take such a massive blow.

One Small Step
This blog has taken risks by pointing out these irregularities.  This money has been taken, in effect, by Mr Chey (alone, without anyone else’s knowledge whatsoever? Uh, no, is a very good guess), from the owners of SK: shareholders of the equity.  Who is that?  Foreign investors, who largely live in jurisdictions where 4 years is small compared to the penalty in their home countries.  Who is that?  Koreans, who own mutual funds or have rights to pensions, that have invested in SK. While it is true that in other nations, this would mean the end of Mr Chey’s professional life, he has survived in the past.

Board of Directors and Influential Shareholders
The only way for those that have taken from everyday Koreans, in such a blatant fashion, is for the Board of Directors and influential shareholders, such as the National Pension Fund and the Korea Investment Fund, to take a stand and prevent this from occurring in the future. Board of Directors should not merely be hand-picked by the founding family of a corporation, and the influential investors must block any such proposal, as is their right. The Korean justice system has stepped forward, and given Boards of Directors and influential shareholders the ammunition required to wage such a war against this type of activity. In this small way, the financial benefits from Korea’s rise in the global economy can be distributed as capitalism intends, and not solely to the few, who don’t share in the financial risk.

Not That Simple
Mr Chey cannot be stupid, of course. Strictly speaking, he is highly educated. The argument can be that the CEO of such a large, successful corporation should be highly compensated, and it is factually correct that a CEO of a corporation in the U.S. or Europe would earn far more than Mr Chey has. That, however, is the for the board of directors and ultimately the shareholders to approve. How Korean companies reach that objective cannot be reasonably foreseen at this time. Mr Chey will have four years to consider how that path can be traveled.

Posted in Korea, Korean Economy | Leave a comment