Our investment holding company has 4 core countries – Singapore, Hong Kong, South Korea and Japan. Today, I will be sharing on the top 3 reasons why we consider South Korea an ideal country to invest in.
South Korea Background
Over 100 publicly listed companies in South Korea have both common and preferred shares. Preferred shares in Korea are very different than preferred shares in the United States. Korean preferred shares are essentially the same as common shares. Preferred shares have a higher dividend yield, equal claim on cash flows and profits, get preferred treatment in case of liquidation, and are treated fairly whenever corporate events take place.
Korean preferred shares were originally issued when the government pressured chaebols to raise more equity. The chaebols wanting to remain in control of their companies but having to compile with government’s regulations created this preferred shares, which are non-voting in nature.
Reason 1: South Korea’s Fiscal Strength
Based on all three major credit rating agencies – S&P, Moody’s and Fitch, upgraded South Korea to its highest ratings since the country was first rated in 1986. Though below The United States and The United Kingdom, South Korea is ranked higher than Japan among the developed nations as seen in the ranking table below.
Furthermore, South Korea has one of the lowest levels of sovereign debt (34.5% of GDP) and is one of the lowest among developed nations as seen in the table below. In a world where most nations are printing money to spur economic growth, this is one point about South Korea that we find comforting and attractive. Furthermore, the South Korean government had a budget surplus in 9 out of the past 10 years.
Reason 2: Increasing South Korean Brand Power
Within South Korea today, there are many famous global brands such as Samsung Smartphones, Hyundai cars, LG Electronics, etc. Furthermore, Korean food, music and culture is beginning to gain popularity in the rest of the world.
Reason 3: Price Discount History
When preferred shares were first issued, they traded at only small price discounts to their respective common shares. Over the years, this price discount has fluctuated dramatically. Today, the price discount is close to its all time high. Korean preferred shares remain one of the few asset classes in the world that has yet to recover from its decline in the 2008 Global Financial Crisis.
The last time Korean preferred shares traded at such a wide price discount of 50% – 70% as seen in the chart below was after the IMF bailout in 1997. Investors who purchased Korean preferred stocks in 1997 would have tripled their investments. Hence, the same compelling investment opportunity exists today.