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 effects of government policies and to understand Korean corporate governance issues.
For example, if the memory industry enters a growth phase, foreign investors would typically invest in one of the most recognizable large cap companies in the information technology sector. But, this would also require a careful analysis of the corporate governance as well as a thorough review of Chinese and Japanese competitors. In contrast, local investors can avoid these competitive risks and governance issues by investing in the hundreds of local memory materials and equipment plays.
Furthermore, local managers can invest more responsively to the emergence of a leading sector. First, there is access to broad coverage universes (150-200 for major sell-side institutions, 400-500 for major asset managers). Second, managers can utilize timely company visits for comparative analysis for diverse stocks. As technological cycles and overall trends become increasingly shorter, local managers could benefit by virtue of proximity versus investing via an indexed product.
The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.