오늘 BusinessWeek지를 보니, Warren Buffett과 한국과 관련된 재미있는 기사가 있었다. 지난 번에 소개하였던 Jeremy Siegel 교수가 쓴 글과도 일맥상통하는 내용같다.
Why Warren Buffett’s Keen on Korea
“Attractively priced” stocks, healthy debt ratios, plus solid manufacturing prowess position Korea to profit from growth in China and the Mideast
by Moon Ihlwan
In other parts of the world, South Korea’s gross domestic product growth—projected at around 5% this year—would make it a high-profile destination for portfolio managers. But since Korea is in Asia, the country is largely overshadowed by the dazzling economic performances of China and India. As concerns grow about overvalued Chinese and Indian stocks, though, money managers shuffling their Asian portfolios are finding Korea increasingly attractive. For American billionaire investor Warren Buffett, for example, China is out, and Korea is in. During his visit to Asia late last month, Buffett cautioned against overreaching in China. Yet he expressed confidence in Korean equities, describing the country as “one of the world’s most attractively priced markets.”
Indeed, Buffett’s holding in Korean steelmaker Posco (PKXFF) is one of his top-performing stock investments this year. Buffett’s Berkshire Hathaway (BRKA) spent $572 million over the past three years or so for a 4% stake in Posco, one of the most profitable steelmakers on the planet, and that stake is now worth well over $2 billion. Berkshire recently sold off its shares in PetroChina, the only Chinese company it owned, but Buffett said during his brief visit to Korea on Oct. 25 that he would hang on to Posco. “It’s a great company and great companies get worth more and more,” he said.
Certainly Korea is not immune to the turmoil shaking markets worldwide. Shocks from the U.S. credit crisis and soaring oil prices have pared the Seoul exchange’s benchmark Kospi index by around 9% this month. Weaker-than-expected tech demand has sent prices nose-diving in memory chips (BusinessWeek.com, 6/15/07), where the Koreans rule.
Samsung Electronics (SSNGY), the bellwether for the country’s information technology sector, has fallen nearly 15% this year and has laid off some 1,600 workers, almost 2% of its workforce.
Korea Excels in Shipbuilding
Still, the benchmark Kospi index is up about 30% from the end of last year, a reflection of strong growth in other parts of the Korean economy. A major attraction is the country’s manufacturing prowess in diversified industries. Korea’s shipbuilding, steel, petrochemical, and other smokestack companies are booming as emerging economies spend heavily to build up their infrastructure and as their shipping trade explodes. “A number of Korean companies are dominant forces in cyclical industries and have historically outperformed their global peers when their industries are in an upswing,” says Yang Ho Chull, chief executive of Morgan Stanley (MS) Korea. “What’s particularly attractive for portfolio managers is the strong performance of these companies, fueled by the rapid growth of China.”
Consider the shipbuilding industry. As China turns into the factory of the world, demand for new ships to carry China trade is expected to remain strong until at least 2010, according to a report by the Bank of Korea, the central bank in Seoul. That means Korea’s shipbuilding firms, which built 41% of all ships delivered last year and include the world’s top three players—Hyundai Heavy Industries (HYHZF), Samsung Heavy Industries (SMSHF), and Daewoo Shipbuilding & Engineering (DWOSF)—will enjoy a boom (BusinessWeek.com, 5/18/07) for a few more years.
The influx of shipbuilding revenue to Korea is so huge that the central bank warned this month against further appreciation of the Korean currency. The shipbuilders, who are sitting on enough work for almost four years, cash in their future revenues to be received in dollars on the forward market to hedge against currency risks. Banks that take up the forward deals then sell dollars for the won on the spot market to offset their dollar forward purchases, and subsequently borrow dollars abroad to settle their spot deals, in the process pushing up the won. Little wonder the share price of Hyundai Heavy, the global shipbuilding leader, has more than tripled so far this year. On Nov. 8, the world’s top shipbuilder released its third-quarter results, reporting that its net profit more than doubled, to $475 million, from $230 million in the July-September period last year.
Greater Transparency Means Higher Stock Prices
Other cyclical sectors such as steel and petrochemical industries are also benefiting from rapid development of emerging markets. LG Chem (LGCLY), Korea’s largest petrochemical company, churns out products ranging from plastics to flooring and automotive parts. It posted a 73% jump in its net profit, to $229 million, in the third quarter. LG shares have jumped 120% so far this year.
The introduction of global corporate standards in Korea since the 1997 Asian crisis has also paved the way for share gains. “In the past, the Korean market has traded at a relative discount because of a lack of transparency and liquidity; but with significant improvement in these areas, the discount, at least for the leading 40 or 50 Korean companies, is disappearing. It is no longer a major issue,” reckons Yang at Morgan Stanley.
Corporate restructuring since the crisis has also improved the financial health of Korean companies. Economist Lim Kyung Mook at Korea Development Institute, a government-funded think tank, points out that the country’s average corporate debt, which used to be as high as four times equity in the late 1990s, has been cut to below 100% of equity. “Many Korean companies are now sitting on a cash pile big enough for them to weather a downturn and reap handsome profits from the next upturn,” Lim says.
Higher Oil Prices Help Korean Contractors
Take LG.Philips LCD (LPL), which has maintained its debt level well below half its equity. The world’s second-largest maker of liquid-crystal display (LCD) panels was bleeding red ink for four consecutive quarters until March of this year because of a supply glut in the industry. Yet the company last month reported a net profit of $573 million for the July-September period, its strongest profit in 13 quarters, against a loss of $249 million a year earlier, as demand for thin panels for computers and TVs grew.
Even an upsurge in oil prices is translating into a bonanza for engineering and construction companies in oil-importing Korea. That’s because the Koreans take a big chunk of the red-hot Middle East construction market. Much of the money earned from high oil prices is spent in building new refineries, petrochemical plants, highways and water desalinization plants, where Korean contractors are strong.
There’s no sign the stream of new construction orders will slow soon. In Dubai, the world’s largest building, the world’s largest indoor ski slope, and three artificial islands shaped like palm trees are all under construction. Saudi Arabia is building the $27 billion King Abdullah Economic City. And Kuwait plans to double its refining capacity at a cost of $14 billion. “The Middle East countries have never been so determined to set up their own industrial base,” says Hong Sung Il, a general manager at Samsung Engineering (SGRGF), a specialist plant contractor whose share price more than doubled so far this year. “The construction boom there will continue at least until the end of this decade.” Korean companies have won $25.6 billion worth of construction contracts in the first nine months of this year, up from $12.6 billion a year earlier, according to Seoul’s Construction & Transportation Ministry.
Decoupling from the U.S. Economy
The dwindling dependence of Korea’s cyclical industries on the U.S. economy is good news in the face of slower consumer spending in America (BusinessWeek.com, 11/26/07). “To some extent, the Korean economy has been decoupled from the U.S. economy,” says Chang In Hwan, chief executive at Seoul fund manager KTB Asset Management. “A spending crunch in America will be felt much more mildly here now than it was a few years ago,” he says.
Encouraged by the more balanced industrial strength, a growing number of Korean consumers are putting their money in stocks instead of in real estate and bank deposits. The amount of money in equity mutual funds, or investment trust funds as they are known locally, reached $111 billion this month, up from $50 billion at the end of last year. “Short-term corrections and fluctuations are inevitable, but in the longer term better corporate profitability and improved liquidity will drive the Korean market upward,” says Chang.
