South Korea martial law has shown the fragility of its democracy and the resilience of its society, people and companies.
Year-to-date south Korea’s equity market is down – 15.7% making it the 7th worst-performing market in the world.
The recent political crisis in south Korea surrounding President Yoon Seok Yul showed the strength of Korean democracy and the country’s important role among the world’s liberal democracies.
South Korea is currently ranked as the 10th largest economy in the world by nominal GDP and the 14th largest economy globally when considering purchasing power parity (PPP). It is also the 4th largest economy in Asia, following China, Japan, and India. This reflects South Korea's strong industrial base, driven by sectors such as electronics, shipbuilding, automotive, and petrochemicals, and its global leadership in semiconductor production and so-called industries of the future.
South Korea's democracy demonstrated "resiliency" at a time when incumbent governments, and not only in France are being challenged globally, the response from both government and civil society in Seoul and the whole country showed South Korea's "checks and balances” and strength of institutions are strong, meriting the attention of global capital and capital allocators.
The EU took note of the decision by the National Assembly to impeach President Yoon Seok Yul. It is important now to ensure a swift and orderly resolution of the current political crisis in line with the Korean Constitution. The Republic of Korea is an important strategic partner for the EU and the United States of America.
South Korea ROK President Yoon Suk Yeol declared martial law on Dec. 3, accusing his political opposition, democratic Party of south Korea (민주당) sympathizing with North Korea Democratic People's Republic of Korea and sparking a selloff in south Korea linked economic entities country's stocks.
After Mr. Yoon’s impeachment Vote, Acting President and Prime Minister Han Duck-soo spoke to U.S. President Joe Biden to reaffirm 'ironclad' alliance between the USA and ROK republic of south Korea.
At the New York stock exchange NYSE there was a sign “the world puts its stock in us.” Global investors and private clients should recall that what is going in in south Korea could be a short to medium term political crisis but not an economic crisis. Private clients should recall that "geopolitical events rarely have staying power," for long-term investment success a country’s fundamentals and institution matter more than political noise or TV headlines.
Buying the drop in South Korean equities spurred by the martial-law declaration makes sense in globally diversified investment portfolios.
Freedom 100 Emerging Markets ETF FRDM - which tracks an index of emerging-market stocks based on personal- and economic-freedom metrics and excludes authoritarian regimes - currently has a 14% weight to South Korea.
South Korea is not included in the MSCI World Index because it is classified under the MSCI Emerging Markets Index, despite its economic and market size. This classification reflects certain barriers for foreign investors, such as restrictions on offshore won KRW trading, limited market information in English, and regulatory complexities.
South Korea currently holds a weighting of approximately 7.65% in the MSCI Emerging Markets Index as of late 2024. This makes it one of the significant contributors to the index, though it is behind larger weights like China, the People’s Republic of China which leads at over 40%.
Global and U.S. investors can opt to buy shares through a local broker in South Korea or invest directly in ADRs. U.S. investors can also find Samsung shares through the Grey Market, traded over-the-counter, or through buying an ETF that includes Samsung. The country ETF EWY currently has 22.94% % allocation to Samsung Electronics.
iShares MSCI South Korea ETF (EWY) closed the week ended dec 13 at USD 55.99.
The 52 week yearly high and low were USD 69. 51 and USD 52. 67 respectively
According to latest Bloomberg data, the U.S. listed country ETF trades at a -0.05% discount to the KRW south Korea won net asset value of the economic exposure. EWY pays investors a 2.95% dividend yield in United States dollars paid annually. EWY five-year dividend growth rate is +15.89%.
The New York Stock Exchange (NYSE) lists several American Depositary Receipts (ADRs) for South Korean companies. ADRs allow U.S. investors to own shares of foreign companies traded on U.S. markets. Prominent South Korean ADRs include Samsung Electronics Co. Ltd., SK Telecom Co. Ltd., and POSCO Holdings Inc., among others. Currently, there are at least eight South Korean ADRs available, encompassing sectors like technology, telecommunications, and steel
The U.S. markets include several South Korean companies listed as American Depository Receipts (ADRs), which allow U.S. investors to invest in foreign stocks. Here is a selection of major South Korean ADRs trading on U.S. exchanges:
- Coupang, Inc. (CPNG) - Listed on NYSE, specializing in eCommerce.
- KT Corporation (KT) - Listed on NYSE, focusing on telecommunications.
- SK Telecom Co. Ltd. (SKM) - NYSE, another key player in telecommunications.
- POSCO Holdings (PKX) - Listed on NYSE, a leader in steel production.
- KB Financial Group (KB) - NYSE, offering financial services.
- Woori Financial Group (WF) - NYSE, also in financial services.
- LG Display Co., Ltd. (LPL) - NYSE, a major technology firm producing display products.
- Korea Electric Power Corporation (KEP) - NYSE, operating in utilities and energy.
In addition, Samsung Electronics has several listings in the U.S., but these trade on the Over-the-Counter (OTC) market, not major exchanges. Private clients who do not have local south Korea brokerage accounts might find the easiest route to market to invest in south Korea’s leading global company is via its London listed GDR global depositary receipt.
Samsungs’ London listing closed the week and Mr. Yoon’s impeachment at USD 964.50.
Seoul based analysts and fundamental research-based analyst have the current consensus ratings on SAMSUNG, Buy 85.7% Hold 14.3%. the analyst community TP Target Price implies potential gain of +44.6% in Samsung electronics local Seoul listed share price and +55% on the London listed GDR. Global depositary receipts. Samsung GDR 12-month Target Price stands at USD 1,495 ad the last price on Friday’s close was USD 964.
South Korea’s WOORI financial group ADR WF US equity trades at a P/E of 3.96x with a USD dividend yield of 1.19% and the 12-month analyst consensus view TP target price of USD 48.46 implies potential return of +46.8% from current levels. WF last close price was USD 33 and the shares are down 6.8% in the past week.
WOORI bank and its Kingdom of Cambodia based and fully owned Woori bank Cambodia offers very attractive USD fixed deposit rates and most probably the best and highest US dollar fixed deposits available to private clients and retail clients in the world. Woori Cambodia Fortune Deposit Accounts pay 6.1% on USD fixed deposit.
South Korea leading Telco, SK Telecom pays 6.4% in cash dividends to investors, paid quarterly and the next ex-dividend date is 12/31/24. The New York traded ADR of SK Telecom closed the week at USD 22.19 and the analyst community fundamental research-based TP Target Price of USD 30.65 implies (potential) return of + 38% from current levels.
The ability to distinguish market and political noise from solid fundamentals is a hallmark of the accomplished private investor and family office client and to paraphrase Hyundai motors global adverting slogan “new thinking new possibilities” . This might as well apply to the global car industry as well as to making money in South Korea equities. As per the words of an ancient Chinese proverb, “fortune favours the prepared mind”.
Rainer Michael Preiss, Partner & Portfolio Strategist at Das Family Office in Singapore
