South Korea Index (EWY)

[ChromePony]

I got into a little chat last night with a buddy of mine who's been working for an investment firm this summer and since Ive been looking for somewhere to stick some of my poker money I thought Id solicit some advice.

He told me that this South Korea Index is way undervalued right now and might be a good pick for something with a little more risk/reward than your basic S&P deal. Im definitely planning to put a good percentage of my money into S&P but Im interested in some more diversity as well. So, anybody out there have anything to say about this one?

Quick background on this guy, he's only an undergrad senior to be (like me), but hes also a very smart guy, econ/stats major at U Chicago, and I feel like he knows what hes talking about. Anyway, just curious...

[Sniper]

What was his reasoning on why he thinks south korean stocks are currently undervalued?

[laserboy]

South Korean stocks, in my opinion, are among the most attractive in the world right now. They sell for extremely low valuations relative to other markets. EWY for instance has a collective PE of 8.5 less than half that of the S&P500.

Those types of valuations are usually reserved for emerging markets such as Brazil or Russia. But South Korea has extremely developed markets probably closer to Japan. They have among the highest levels of income and GDP per capita in the world.

Furthermore their top companies are among the "best in class" worldwide and extremely competitive in the global marketplace. Posco is probably the finest steel producer in the world. The same could be said for Samsung in memory, LCD's, and consumer electronics. They are leaders in online gaming, which is one of the few industries in the world I am actually bullish on. Not bad for a country of 50 million.

Their currency is very strong and should be among the primary beneficiaries of any further revaluation of the Chinese yuan. Though this could be a two edged sword if you are investing in Korean exporters.

The primary risk is that they are very dependent on exports, particularly to the US and China, so their economy will also suffer during the upcoming depression. Also their manufacturing sector will ultimately be squeezed by China and they currently have high levels of consumer debt.

All in all, if you insist on owning stocks, you could do a lot worse than EWY.

[ChromePony]

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What was his reasoning on why he thinks south korean stocks are currently undervalued?

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It was somewhat similar to what laser said, that it has a strong economy but people are slightly afraid of volatility in that region. Anyone else care to weigh in?

[kagame]

fear is the mindkiller

[imported_bingobazza]

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fear is the mindkiller

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eh?....if you arent afraid of stocks at the moment, you dont know very much about them....but S Korea could be very good...provided you recognise the cyclical nature of the stock valuations...theres no new paradigm here. As for political tensions, N Korea and the US had some successful talks a couple of weeks back about the nuclear issue, and although nothing was solved, some nice noises came out of the meetings. S Korea isnt a banana republic by any means, but it will suffer from drops in consumption, as has already been stated. The major regional political issue therefore is the widely anticipated coup by Beijing in Taiwan next year to reunite China...swift and targeted at the political leaders...no long war...prolly just a weekend.

The regional financial issues are the revaluation of the Yuan and the unwinding of Beijings stock positions in the domestic markets, scheduled for the next 6-8 months. Now HERE is a golden opportunity...after the dust settles. The big auditors have been in town for a while, cleaning everything up in preperation for this...and theres an avalanche of cash waiting on the sidelines for this mass privatisation to go through.

The major, (unstoppable?) investment theme in the region IMO is booming chinese consumption for export market manufacturing and domestic consumption. The biggest winners here will be resource rich neighbours like Vietnam, the Phillipines, Australia, Malaysia, Russia and Thailand who supply the commodities to China. I think that this theme is much stronger than the growing S Korean exports theme.

Fear is the mother of preperation.

Bingo

[ChromePony]

Just thought I'd bump this to show how we should always listen to random stock tips from our friends.

Up almost 20% since he told me about it (http://tinyurl.com/8neho)

nice move

[ChromePony]

Oh...and I didnt take it...but thanks

[laserboy]

Bump!

Warren Buffett, Unplugged (http://online.wsj.com/article/SB113175788303495486.html?mod=todays_us_page_one)

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Last year, Mr. Buffett says, he began buying Korean stocks for his personal brokerage account, investing a total of $100 million in roughly 20 Korean companies. He says that the investments were too small to be appropriate for the Berkshire portfolio. "These were not Berkshire-size remotely," he says.


He picked the stocks, which he declines to name, by leafing through a reference book compiled in Korea and provided by Citigroup to some clients. The book devotes a single page to each listed company. "You look for solid-looking companies at very low multiples of earnings, and sometimes with the added bonus of lots of excess cash," he said. After the shares rose in price, he unloaded some of them, though he still calls them cheap.


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[solucky]

I have Samsung and Hyundai longer than a year, and think about to sell them /images/graemlins/smirk.gif, both are 80%-100% up.

[kagame]

keep some on the table and let it run :-)