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This Country is #1 in Equities

Posted July 4, 2008

Krista Das on TFN Market Insights

Even emerging market superstars like India and China are beginning to panic about domestic inflation levels. Martin Hutchinson reveals a surprising country with decent growth and modest inflation that is worthy of your investment dollars.

This Country is #1 in Equities

By Krista Das, TodaysFinancialNews.com

Baltimore — (TFN): The following is taken from this week’s Market Insights video featuring Martin Hutchinson.

Krista Das: So which company is rising above the rest of the equities market?This Country is #1 in Equities

Watch this Market Insights video NOW.

Martin Hutchinson: The country is South Korea, and the reason is that it has decent growth, about five percent this year, and low-ish inflation, running currently at about 4.9, which is pretty close to where the U.S. inflation’s running, and much lower than China and India, which are both around ten percent, or even a bit above, in India’s case.

Krista Das: Why do you think South Korea’s doing so well now?

Martin Hutchinson: Well, I think partly, it’s had a positive political shock in that until last year, it was run by a government that really wasn’t terribly interested in economics. It was sort of center left and they were putting the chairmen of the major conglomerates in jail.

Then they had an election in December and a parliamentary election in April and elected a pro-business government, and that is committed to economic growth, obviously. And it’s also not putting the chairmen of the major companies in jail and generally not harassing business. Not increasing government spending. Now, that’s one of Korea’s big pluses. Their government spending’s way lower than anybody else’s, even Japan’s or U.S., let alone Europe.

Krista Das: Well, it sounds like there’s good opportunities in South Korea for investing. Does South Korea have stocks that are ADRs fully listed on New York that trade in a reasonable volume?

Martin Hutchinson: Yes, it has about five that are pretty reasonable. You have to remember that South Korea’s a sort of anti-play on the commodities economy. It doesn’t have huge amounts of natural resources.

So one of the reasons why its stock market has not zoomed up and, indeed, has gone down with the others, is that most of its companies are short commodity prices rather than long, if you like. In other words, POSCO, for example, the steel company, just got socked with a 65 percent increase in the price of iron ore from its main suppliers. That was earlier this year.

But POSCO’s the most efficient steel company in the world. Once iron ore prices start going up 65 percent a year, then POSCO will do well. Obviously, to the extent that everybody else’s iron ore prices go up the same amount, they will suffer, too.

So that’s certainly one good recommendation, but wait ‘til commodities look as though they’ve gone off the boiler bit, and that’s PSC on the New York Stock Exchange.

Krista Das: What about a Korean ETF?

Martin Hutchinson: We haven’t got there yet, because the other one you want to look at is the bank, Kookmin Bank, which is on a price-earnings ratio of only about seven and a half currently.

The advantage of Kookmin is that they had a housing bubble, but it was sort of five years ago and quite small, and they were busy coping with that, so they didn’t – unlike the Japanese banks, they didn’t invest in the U.S. housing disaster.

Therefore, Kookmin’s going along, making housing loans, consumer loans, and business loans in Korea, while, as I say, a seven and a half times price-earnings ratio, about a four and a half percent yield. It’s a terribly good deal.

The third one I’d suggest you look at is SK Telecom, which is the leading cell phone provider in Korea. It’s just over 50 percent market share. It was holding its market share down because the government wouldn’t let it expand under the previous government, but now it doesn’t have to do that anymore.

Furthermore, it’s got an investment in Chinese cell phone technology, which looks as though it’s making some progress, and it’s also about 70 percent of the third largest cell phone provider in Vietnam, which is still a small market, but, of course, it’s growing like crazy, because the Vietnamese economy has done well. That’s SKM on the New York Stock Exchange. Kookmin Bank is KB.

And then finally, as you said, there’s an ETF, which is the iShares ETF, which is American Stock Exchange EWY, and that’s invested in all the Korean companies and therefore, has a price-earnings ratio of about 11 and a half, which, again, is pretty damn good value, compared to most markets in the world.

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