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Posted by on Sep 16, 2016 in Korea Investment Management, Market Insight

South Korea Gets Upgrade Despite Shipping Turmoil

South Korea Gets Upgrade Despite Shipping Turmoil

Editor’s Note: The following insight comes from Korea Investment Management – a leading asset manager in South Korea – and continues a series of posts intended to introduce South Korea as an investment destination.   On August 8, S&P upgraded its sovereign credit rating for South Korea from AA- to AA with a stable outlook, the first upward revision in 11 months. Of note, this is a record-high sovereign rating for the country. Currently, Korea’s rating is the highest among emerging markets and even higher than neighboring China (AA-) and Japan (A+). S&P attributed the upgrade to 1) more stable economic growth relative to developed economies, 2) a well-diversified trade structure that is not dependent on a specific sector or export market, 3) sturdy external soundness and 4) sufficient fiscal and monetary policy flexibility. We believe the upgrade is particularly notable given the ongoing rating downgrades for other emerging economies and advanced markets (third upgrade for Korea over the past year by credit rating agencies). As Korea has a...

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Posted by on Aug 9, 2016 in Korea Investment Management, Market Insight

Korean Local Managers: Secrets of Success

Korean Local Managers: Secrets of Success

Editor’s Note: The following insight comes from Korea Investment Management – a leading asset manager in South Korea – and continues a series of posts intended to introduce South Korea as an investment destination.   In Korea, leading sectors clearly catalyze an overall stock market uptrend every three to five years. In the early-2000s, the market was led by IT, followed by China plays, such as materials and industrials, in the mid-2000s, and consumer goods after the financial crisis. During each cycle, companies that were in growth phases performed well. Overall, it is relatively easy to identify rapidly growing industries from a top-down perspective. But, finding individual companies that will benefit from industry-wide growth requires a more detailed bottom-up analysis. Analyzing Korean companies requires understanding underlying market conditions given the competition and cooperation among Korean, Chinese and Japanese players. As such, a top-down approach may be insufficient for stock selection given the complex supply chains for different materials and intermediary goods. In particular, investors need to closely monitor the...

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Posted by on Jul 20, 2016 in Korea Investment Management, Market Insight

The Evolution of Korea’s Industrial Structure

The Evolution of Korea’s Industrial Structure

Editor’s Note: The following insight comes from Korea Investment Management – a leading asset manager in South Korea – and continues a series of posts intended to introduce South Korea as an investment destination.   Over our previous writings on AlphaBaskets, we have covered the reasons why the services sector’s growth potential exceeds that of manufacturing and why consumer sectors are better positioned than industrials. This is not a temporary phase, but a structural change as Korea evolves into a developed economy. A review of G7 countries, the leading developed markets (DMs) confirms this type of de-industrialization as the weighting of manufacturing declines gradually. Even in Japan and Germany, which have relatively high manufacturing weightings among G7 countries, the weighting of services to total GDP has been trending gradually upward. During 1970-2014, the weightings of services in Japan and Germany have climbed by 22.2% and 20.1%, respectively. In Korea, the services weighting increased 18.2% from 41.2% in 1970 to 59.4% in 2014. However, this is still relatively low compared...

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Posted by on Jun 10, 2016 in Korea Investment Management, Market Insight

Consumer Spending in China: “China Play” Again

Editor’s Note: The following insight comes from Korea Investment Management – a leading asset manager in South Korea – and continues a series of posts intended to introduce South Korea as an investment destination.   Once the “world’s factory,” China is no longer the leader in global manufacturing as the services sector has emerged as a dominant engine since manufacturing-centered growth has wound down. Since 2012, the weighting of tertiary industry to GDP exceeded secondary industries, and the gap has widened rapidly. Until recently, market interest in China plays in global equity markets was mostly limited to materials and industrial-orientated heavy industries. With the eroding growth potential of the Chinese economy and massive industrial restructuring underway, we recommend closely monitoring “New China Play” stocks focused on IT and consumer goods. While valuations of traditional China plays, such as chemicals, steel, machinery and shipbuilding, remain at historically low levels, new China plays, including IT, food & beverage, cosmetics, fashion and leisure, are trading at burdensomely high levels. However, 1) deteriorating...

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Posted by on May 19, 2016 in Korea Investment Management, Market Insight

Why Korea: Consumer Staples: A New Growth Engine

Why Korea: Consumer Staples: A New Growth Engine

Editor’s Note: This is the first in a series of posts intended to introduce South Korea as an investment destination from Korea Investment Management, a leading asset manager in South Korea.   Following the financial crisis, the global economy has faced a “general glut”. Specifically, there is an oversupply in manufacturing due to excess capacity and soft global demand, which has resulted in poor conditions for corporate investments. Accordingly, consumer spending has replaced investments as the core growth driver in most countries. Similar to the US and Europe, China and Korea had traditionally relied on manufacturing but now have to focus on fostering domestic consumer spending. In major developed markets (DMs), consumer spending accounts for 60-70% of GDP. In Korea, private consumption accounts for less than 50% of GDP, lower than the major DMs, but this weighting is expected to rise gradually.   Before the financial crisis, Korea’s economic growth was traditionally driven by export-orientated manufacturing sectors, including home appliances, automotive, shipbuilding, steel and chemicals. And, investments were primarily...

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