Emerging Markets: Investing in South Korea

Posted December 23, 2007

Sara Nunnally, editor of Taipan Trader, takes a look at what is happening in the South Korean market — and how traders can profit with this hedged options play.

Baltimore – (TFN): The following is taken from the transcript for the TFN Smart Trading Action Alert program filmed December 19, 2007.

Laura Cadden: Welcome to TFN’s Smart Trading Action Alert. I’m Laura Cadden.

Last spring, Warren Buffett directed investor attention to South Korea, triggering interest in the KOSPI (that’s the Korean Composite Stock Price Indexes).

Such interest would seem to be warranted. South Korean shares have flourished in 2007, causing speculation that seekers of foreign investments are moving away from China to other Asian markets.

To explore the opportunities South Korea presents to smart traders and investors, I’ve invited Sara Nunnally, editor of Taipan Trader, which is currently beta testing its evaluative metrics and WaveStrength Options Weekly. Welcome back, Sara.

Sara Nunnally: Thank you, Laura.

Laura Cadden: So you’ve covered a lot of Japanese investments recently, but I read an article in which you turned your attention to South Korea. Now, they just elected Lee Myung-bak as president. How do you think this is going to affect the future of the KOSPI?

Sara Nunnally: It could have a serious positive impact for Korean businesses, particularly because Lee Myung-bak has a more progressive focus on businesses. He wants to roll back some regulations, which would encourage foreign investment. And that’s a bit of a change because Korea has been stuck between two different types of philosophies… either to be self-sufficient or to be globally competitive.

Now, let me give you an example of what that means. For the past three decades, the electronics industry has had a buy-Korean philosophy, which means that Korean companies are buying components and whatnot from other Korean companies. Now, those same companies are starting to have more competition from other companies that are buying cheaper components from places like China and Taiwan.

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Laura Cadden: South Koreans have focused on science and technology since the 1980s. Do you think that’s where investors – and/or traders – should look for profits?

Sara Nunnally: Well, we think that Korean electronics companies like Samsung or LG Philips are good investments in the future, and they have been in the past. But we also want investors to be aware of a bit of short-term weakness, particularly in LG Philips. And one of the reasons we’re seeing a little bit of weakness is because of U.S. economic worries.

Now, outside of China, LG Philips gets most of its income from the U.S., and that means if we have a bad holiday season, which is very possible because of the weak dollar and consumers starting to pinch their pockets a little bit, that could spell a bad season for LG Philips as well in terms of profits.

Laura Cadden: We’ve been seeing recent volatility just over the past few days in the KOSPI. And the South Korean won has been dipping in value of late compared to the dollar. Is this going to impact these stocks?

Sara Nunnally: Well, overall, we like the South Korean economy. This recent volatility in the Korean markets but also in the Japanese markets has us sitting on the sidelines for just a little bit, but that doesn’t mean that we can’t take advantage of this weakness that we’re seeing in LG Philips. In fact, we’re recommending readers get positioned in some puts, and specifically, the April 25 puts.

But remember, I said this could be short-termed weakness, and that’s why we’re also recommending readers get positioned in some calls. The April 35 calls. So in a nutshell, we’re seeing short-term weakness for LG Philips take it down for the next two months. But then after those two months, we’re going to see a rebound, and that’s why we’re kind of issuing this hedge play.

Laura Cadden: Very interesting plays. Do you think the dollar’s exchange rate development will influence the KOSPI in general?

Sara Nunnally: Well, I think exchange rates can be a double-edged sword, specifically for South Korea. Its exports are pretty much fueling its economy, so a strong yuan could mean that other countries might have some trouble buying its goods. But on the other hand, a weak currency could also kind of discourage some foreign investment. So I think it’s in the best interest of a number of Asian countries, to see a strong dollar.

Laura Cadden: So tell me about Taipan Trader. I know it’s been doing extremely well in the beta testing. When is it scheduled to officially launch?

Sara Nunnally: Well, you’re right, it is doing extremely well. We just took 145 percent gains on our Brazilian basket, but we’re really just getting started. The U.S. markets, we’re seeing a little bit of weakness in there, but there’s also opportunities because of that. It’s not just something to be feared.

I think in looking and taking more of a global picture, we’re seeing more opportunities and some really amazing ones, and not just in those smaller emerging market type economies that people could be scared of. We’re seeing opportunities in places like Spain, in places like Germany. But we’re also able to take advantage of weakness in other countries, as I’ve shown today. So I think Taipan Trader could be a very powerful product for U.S. investors looking to diversify away from some instabilities here at home. And we’re looking to launch Taipan Trader in the New Year.

Laura Cadden: Excellent. And you’re going to be going to Spain soon to do research?

Sara Nunnally: Yes, I’m taking a trip to both Spain and Morocco to see what’s on the horizon.

Laura Cadden: Well, very interesting information, and thank you so much for the suggested plays.

Sara Nunnally: Always a pleasure.

Laura Cadden: If you’d like an early peak at Taipan Trader, sign up as a member of WaveStrength Options Weekly, currently the most popular trading research service at the Taipan Group. You can find more information under the “International Investment” section of our homepage about what Sara discussed today at http://www.todaysfinancialnews.com/, or go to the WaveStrength website at http://www.wavestrength.com/.

Please join us for another opportunity for profits on TFN’s Smart Trading Action Alert. For Sara Nunnally and TodaysFinancialNews.com, I’m Laura Cadden.