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Why Warren Buffett’s Keen on Korea

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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.

Why Korea has a bright future

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와튼의 간판 스타이신 Jeremy Siegel 교수님이 오늘 Yahoo Finance에 한국에 대한 글을 쓰셨다. 미래에셋에서 돈을 받고 쓴 글이 아닐지 의심될 정도로 내용이 좋아서 여기에서 공유한다. 조금 길지만, 한국 사람이라면 반드시 읽어야 하니 모두들 사전을 하나씩 옆에 두시고 끝까지 읽어보시기 바란다.

Why Korea Has a Bright Future
by Jeremy Siegel, Ph.D.

My 14-hour Korean Air flight on a non-stop Boeing 747 airliner from New York to Seoul took the polar route over Siberia and China right towards the South Korean capital. But when the plane approached North Korea, it turned sharply east to the Yellow Sea and then hugged the coast before veering west to land at Incheon, the sparkling new airport completed in 2001, a year before Korea hosted the World Cup.

The detour is mandated by North Korea which does not allow South Korean aircraft over their airspace, a restriction that adds nearly an hour to the flight. The north-south division has been a central feature of Korea over the past half century, influencing its politics and economics. But the country is now looking forward, seeking its place in Asia’s future amid the growing economic power of China.

I was invited to Seoul by Mr. Park Hyeon-Joo, Founder and Chairman of the Mirae Asset Group, one of Korea’s fastest growing financial companies. The firm was one of the sponsors of a conference honoring the 20th anniversary of the National Pension Service, Korea’s social security system. Korea, in contrast to the US, invests some of its massive $250 billion trust fund in equities and was considering the advantages of an even higher allocation.

An Asian Economic Success

South Korea is enormously successful. Its per capita income is more than 60% of that of the US, up from only 8% in the early 1960s. Seoul is the second most populated metropolitan area in the world (behind Tokyo), with over 22,000,000 residents. It is a modern Asian metropolis with little sign of poverty.

The country has come a long way from the 1998 Asian crisis that spread from South Asia to Korea. At the height of the crisis, the South Korea’s market index, the KOSPI, fell 74% from 1150 to 277. But lately the market has been surging and in October the index surpassed 2000 and Korean stocks now have a market value over $1 trillion.

Despite the recent bull market, the valuation of Korea’s stock market is still quite compelling. The KOSPI index is selling at only 15.5 times this year’s earnings, a valuation that compares favorably with 19 time earnings in Indonesia, 24 in India, and the 50s for the booming Chinese stock market.

Investors looking to invest in the country can buy the iShares MSCI South Korea Index ETF (EWY), which trades on the New York Stock Exchange.

The Korean won is also strong, rising from 2000 to the dollar at the height of the crisis to 900 today, about the same rate it was before the Asian turmoil began. In dollar terms, the Korean stock market has increased more than ten-fold over the past decade.

But despite this recovery, the country is at a crossroads. It is aging more rapidly than the US, and its fertility rate of 1.2 rivals Japan as one of the lowest in the world. Geopolitical risks abound as the division between the North and the South hangs over the country.

Koreans constantly debate the pros and cons of an eventual merger with the North. They are acutely aware of the cost that West Germany incurred in the absorption of East Germany. They rightfully argue that if the South absorbed the North, the cost to South Korea would be greater since North Korea is so much poorer than East Germany was when the Berlin Wall fell. Yet many feel that eventually the two countries will be united.

But there are more immediate challenges. Korea’s manufacturing is being squeezed by cheap labor from China and its electronics giant, Samsung, has been floundering of late. Increased competition is everywhere. For example, the Koreans once dominated the computer game market in China, but are now feeling stiff competition from the Chinese themselves.

Blueprint for the Future

Mr. Park, the far-sighted chairman of Mirae Asset Management, believes that Seoul can make its mark in financial services and become the financial center of East Asia. The financial industry is growing and clearly has an important place in Korea’s future. But to insure future growth Seoul would have to reduce regulation and foster an innovative and dynamic image. Today there are far too many restrictions on short selling, hedge funds, and its financial institutions are small by today’s international standards.

Yet Korea has some decided advantages. Its people are highly educated and the country sends more students to the US than any other Asian nation, including China and India. Recent political trends have turned more conservative and economic growth is being giving top priority. The five year rule of Roh Moo-hyun, a populist who promised to redress the inequalities of wealth and break up monopolies, has not been successful.
As a result, Lee Myung-bak, the former Hyundai executive and mayor of Seoul, enjoys a strong lead in the polls for the upcoming presidential election.

A pro-business government is important, but Korea must do more. To achieve economic success, Seoul must retain its foreign-educated students and entice others to make their mark in Korea. Mr. Park’s presentation at the conference emphasized the importance of being a magnet for top talent. His slides showed the vibrant and colorful skyline of Pudong area of Shanghai and compared it to the clean, white, but uninteresting skyline of Seoul.

He is right: Seoul, like other Asian capitals, must compete with Hong Kong, Singapore, Shanghai, and others cities to attract the best people.
We Americans should also not become complacent, as many rightfully claim that the world’s financial center is moving from New York to London and the Far East. All cities now compete in the global marketplace.
Korea’s greatest resource is its people as it has a highly educated and motivated workforce. The country rose from poverty to become one of the richest nations in Asia in a few short decades. As long as it stays focused on the future, I see no reasons why Korea cannot continue to be a leader in Asia.

Sarah Chang Plays Mendelssohn

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주말에 와이프와 오랜만에 문화생활을 해볼까 인터넷을 뒤져보니 이번 주말에 바이올리니스트 장영주 (Sarah Chang) 씨의 멘델스존 콘서트가 있어서 큰 맘 먹고 $83 표를 두개 샀다. 지현이는 예술에 조예가 깊지만, 나야 뭐 무식해서 클래식 음악은 잘 모르지만 그래도 장영주씨와 같이 유명한 Korean을 필라델피아 촌구석에서 볼 수 있다는 기대를 하고 Verizon Hall에 입장하였다.

부끄러운 사실이지만, 오늘 태어나서 처음으로 오케스트라 연주를 봤다 ㅎㅎㅎ. 그리고 아주 대박으로 감동을 받았다. 일단, 장영주씨의 집중력과 열정에 크게 감동을 받았다. 어떻게 이 많은 관중들 앞에서 저렇게 작은 바이올린에 온 정신을 집중할 수 있을까…솔직히 조금 부러웠다. 나는 장영주씨 같이 현재 내 본분에 110%의 열정을 쏟아 붇고 있는가…스스로 매우 초라해졌다. 

그리고 또 놀란점은 오케스트라에서 뿜어져나오는 에너지였다. TV에서 보는 오케스트라는 상당히 정적이었으며, 얌전한 group이었는데 실제로 콘서트 홀에서 보니 엄청난 에너지를 발산하는 dynamic한 유기체라는 느낌을 받았다. 50개가 넘는 재각기 다른 악기들이 지휘자의 leadership하에 보이는 극도의 절제…그리고 그 절제된 움직에서 발산되는 에너지…상당히 좋았으며 오케스트라의 에너지를 내가 흡수한거와 같이 기분이 좋아졌다.

집에와서 조사를 해보니 장영주씨가 태어난 곳이 필라델피아였다. 그래서 필라델피아 사람들이 그렇게 기립박수를 치고 좋아했구나…

Stanford 동지들 – Bon, Moto와 Fendi 그리고 비즈니스

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Stanford 대학원에서 룸메이트였던 Bon과 Moto 그리고 같은 반 친구였던 Fendi와 conference call이 오전 8시에 있어서 오늘은 10시 수업이지만 새벽같이 일찍 일어났다. Bon은 원래는 중국/홍콩 혈통인데 어렸을 적부터 뉴질랜드, 캐나다, 스위스 등 다양한 해외 거주 경험이 있는 친구이다. 뉴질랜드에서 학부를 졸업하였고, Stanford에서 기계공학 석사를 취득한 후 실리콘 밸리 Cisco에서 일하다가 프랑스의 INSEAD에서 MBA를 취득한 후 현재 스위스의 Tag Heuer (high-performance 시계) 본사에서 brand marketing을 하고 있다. Moto 또한 일본인 이지만 유년기를 유럽에서 보내서 영어가 매우 유창한 친구이다. Moto는 한마디로 천재/수재인 친구이다. 동경대 기계공학과를 우수한 성적으로 입학하여 Stanford에서 기계공학 박사 과정을 4년 만에 졸업한 매우 비상한 머리의 소유자다. 현재 Kinya라는 동경대 동창과 같이 동경에서 Takram이라는 상품개발/디자인 회사를 운영하고 있는데 비즈니스가 날로 번창하고 있다. 나도 작년 11월 Wharton 인터뷰를 하기 위해서 동경에 당일치기로 다녀온 적이 있는데 시간이 조금 남아서 Takram 사무실을 방문하여 Kinya랑 인사를 한적이 있는데 매우 좋은 인상을 받고 돌아왔다 (점심도 비싼 도시락을 얻어먹었다). Fendi는 인도네시아 갑부 집 아들이다. Wisconsin 대학에서 산업공학을 전공하고 Stanford에서 제조공학 (Manufacturing Systems Engineering) 석사 학위를 취득한 후 실리콘 밸리의 A.T. Kearney에서 컨설턴트 생활을 오래 하다가 가업을 물려받기 위하여 자카르타로 돌아와서 나보다 한달전인 6월에 결혼을 했다. Fendi네 집안은 인도네시아에서 굉장히 유명한 대리석 비즈니스 사업을 크게 하고 있는데 나도 6월달에 Fendi 결혼식 참석 차 공장 견학을 하였는데 이게 장난이 아닌 비즈니스였다.

스탠포드에서는 워낙 다양한 친구들과 많이 어울렸는데 위 3명은 나랑 아주 각별하게 친하게 지낸 친구들이다. 6월달 Fendi 결혼식도 나와 Moto가 참석하였고, 7월달 내 결혼식에도 Moto는 왔었다. 그리고 올해 5월달에 Moto가 주말을 이용해서 서울 나들이를 왔었는데 이때 3일동안 우리집에서 자면서 서울 시내 구경도 하고 지현이랑 같이 인사도 하고 굉장히 재미있는 시간을 보냈다. Moto, Bon 그리고 나는 약 6개월 동안 같은 아파트에서 룸메이트로 살았는데 3명 다 학교 공부보다는 사업과 창업에 관심이 많아서 일주일에 2번은 꼭 스탠포드 앞에 있는 Starbuck’s에서 우리가 생각하고 있는 비즈니스 아이디어나 미국에서 아시아인들이 어떻게 하면 성공할 수 있는지 등과 같은 다양한 주제에 대해서 brainstorming을 하고 밤늦게 Denny’s에서 야식을 엄청나게 먹었던 기억이 아직도 새록새록 하다. 졸업식 날도 팔로알토의 유명한 중국 식당인 Hong Kong Flower Garden에서 부모님들과 다 같이 저녁먹은 이야기를 아직도 가끔씩 하곤 한다 🙂

주저리 주저리 말이 많았는데….그럼 오늘 conference call은 왜 한거냐? 요새 우리 친구 Fendi가 가지고 있는 큰 고민거리가 하나 있다. 대리석이라는 낙후되고 전통적인 비즈니스를 하는 Fendi네 회사 Jaya Abadi Group의 지속적인 성장을 위해서는 기존 비즈니스를 진행하면서 동시에 새로운 비즈니스 활로를 찾아야 하는데 현재 대표이사인 Fendi 아버지 및 나이드신 경영진 어르신들의 머리에서는 도저히 새로운 아이디어가 안 나오는 것이다. 미국에서 선진 비즈니스를 배운 2세들이 새로운 사업을 하려고 하면 항상 부딪히는 벽에 Fendi도 예외없이 부딪힌 것이다. 일을 벌이려고 하면 변화를 싫어하는 보수 경영진들이 사사건건 반대를 해서 요새 잠을 거의 못자는거 같아서 우리가 좀 도와주겠다고 나서서 각각 다른 시간대 – 일본, 인도네시아, 미국, 스위스 – 에 있는 옛 동지들이 힘을 뭉치기로 했다. 일단 시간 자체를 잡는게 너무 힘들었는데 필라델피아 시간 오전 8시면 다 깨어있는 시간이라서 오늘 오전에 진행을 한것이다. 몇 달 전에 Moto가 Ryu Itadani라는 일본인 화가/디자이너 친구를 소개해 준 적이 있는데, 이 친구의 디자인을 대리석에 입혀서 high end market을 겨냥한 명품 대리석을 만들어 보자는 아이디어를 바탕으로 오늘 conference call을 진행하였다. 오랜만에 4총사가 모여서 그동안 살았던 이야기, 신혼생활 이야기, 세상 많이 좋아졌다는 이야기 (Skype를 통해서 conference call을 했는데 정말 세상 많이 좋아졌다는걸 느꼈다. 이런 기술의 발전이 우리의 삶을 윤택하게 한다는 점을 다시한번 뼈저리게 느꼈다)도 하고 본격적인 비즈니스 이야기를 하였다. Moto의 수고로 인해서 Ryu Itadani도 직접 conference call에 초대를 하여서 같이 이야기를 하였다. 몇 가지 좋은 아이디어가 많이 나왔는데 confidentiality 관계로 여기에 공개적으로 쓰지는 못하겠다. 정작 궁금하신 분들은 저한테 직접 연락해 주시면 힌트를 조금 드릴게요.

내가 Fendi의 위치에 있었으면 과연 어떤 액션을 취했을까? 나 같으면 일단 현재 경영진들을 과감하게 교체하였을 것이다. 한 두번 변화의 힌트를 주었는데도 불구하고 변화하지 않는 사람들은 막말로 “짤라야” 한다. 나이 많고 갈 곳 없는 사람들한테는 너무 잔혹하지만 회사, 직원, 직원들에 딸린 식구들 그리고 주주들을 위해서는 이 보다 효과적인 방법은 없다. 대화를 통해서 이 사람들을 설득한다? 시간이 그렇게 많은가? 더 이상 옛 방법을 고수하는 사람들이 살아남을 수 있는 자리는 없다. 무조건 변화해야 한다. 과묵하기로 소문난 이건희 회장도 다음과 같이 말하지 않았는가 “마누라와 애들을 제외하고는 다 바꿔라!” 좋은 아이디어 전에 좋은 사람들이 있다. 모든 비즈니스의 시작은 사람들이다. 좋은 사람들이 있으면 나쁜 아이디어를 좋은 비즈니스로 만들 수 있는 무한가능성이 있다. 일단 star team을 갖추어야 한다. 왜 좋은 경영대학원에 오려고 노력하는가? 이미 사전 스크린된 좋은 사람들의 표본 집단이기 때문이다. 5명과 이야기 하면 최소 3명은 똑똑하고 가능성이 있는 사람들이 모여 있는 곳이기 때문이다. 그것 때문에 나도 비싼 등록금을 내고 다시 학교에 오지 않았는가.

일찍 일어나서 좀 피곤하지만 그래도 오랜만에 오랜 친구들과 수다 떠니까 참 잼있었다. 어리버리한 대학원생들이 저마다 각국에서 어느정도 자리를 잡아가는걸 보면 참 대견하기고 하고…나 스스로도 대견스럽고 ㅎㅎ. Skype를 창업한 Niklas Zennstrom과 Janus Friis 의 위대함을 다시 한번 느꼈으며, 이 회사에 돈을 대준 선견지명이 있던 투자자들 그리고 Skype를 26억 불이라는 엄청난 프리미엄을 주고 인수한 eBay의 결단력에 다시 한번 감탄할 수 밖에 없었다.

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