In a turnabout from the height of the 1997 Asian financial crisis, many investors who shunned South Korea’s mega conglomerates, like Samsung and Hyundai, now covet them.
Investors wary of direct exposure to the emerging markets, but still seeking the benefits by the long-term upside potential that developing economies offer are particularly inclined to invest in the huge companies.
Joe Cunningham, executive vice president and head of capital markets for Mirae Asset Global Investments’ Horizon ETFs, has long been referring to South Korea as an emerged market, because “it has all the hallmarks of a developed economy,” and yet it has strong links to emerging markets.
Like Japan, South Korea – which is held in the MSCI Emerging Markets Index but doesn’t figure in the FTSE Emerging Markets Index – has a very well established manufacturing base, a strong savings rate, high income per capita growth and competitive exports, but it’s “still correlated to emerging markets growth,” Cunningham said, “so it’s a low risk way to get exposure to emerging markets, which, as we know, have not been the best place to invest in the past 18 months.”
Against an increasingly strong macroeconomic background, South Korean corporate giants like Hyundai, Samsung and LG Electronics, have gone through a significant reform process in the years since the 1997 financial crisis, and have, according to Scott Colyer, chairman and CEO of Advisors Asset Management, “come back with a vengeance” from that time and from some of the other ills that had plagued them subsequently.
“South Korean companies have done a tremendous job of supplying to Mainland China and their exports to the U.S. have also grown dramatically,” Colyer said. “Of course, these companies do face quite a bit of competition in Southeast Asia, notably from countries like Vietnam, for example, and there’s always an underlying risk in the South Korea/North Korea dynamic.
However, “these are risks we can’t really quantify, so from the standpoint that the South Korean economy is doing so well, these companies are very attractive and we think there’s nothing but upside,” Colyer said.