Political risk impacting South Korea asset prices?

The so-called “Korea discount” has been blamed variously on risks from North Korea, poor protection of minority shareholders, lax corporate governance, lack of transparency and consistency in government policy and miserly dividend payments by Korean firms.

There are following views of analysts polled by Reuters:

Kim Jae-Eun, Economist At Hyundai Securities: “We have a Korea discount, but it has been weakening a lot. It is very hard to say how much it is, but given higher volatility in our financial markets than those in other countries, we do have a Korea discount... Some foreign investors take out money out of here citing the discount.

Park Sang-Hyun, Chief Economist At Hi Investment & Securities: “The Korea discount usually refers more to risks on North Korea than to economic factors. The discount has eased a great deal, but we are not free from it yet. Local investors do not really care about North Korea, but foreigners will fly out once we face fresh risks from the North.”

Hwang Tae-Yeon, Fixed-income Analyst At Tong Yang Securities: “There is a Korea discount, given that South Korea's CDS (credit default swap) premium is higher than other countries with similar credit ratings. There are geopolitical risks surrounding North Korea, and also South Korea's external dependence and external debts are quite high.”

Lim Dong-min, Market Analyst At Kb Investment & Securities:

“The Korea discount may exist, but I think it is wholly different now from years back when the term was first introduced.

“Even looking just at this year, we've been seeing robust foreign buying into domestic stocks, and rallies in our markets have been very strong.

“I think foreign investors are more interested in the fact that South Korea's listed firms are posting strong earnings, and that our economy is improving. Yes, our markets may be discounted versus developed markets, but that comes from being an emerging market. ”

Kang Sung-Won, Market Analyst At Dongbu Securities:

“It is hard to argue the Korea discount does not exist at all. It still exists — because North Korea still exists. And the fact that South Korea's industry is very sensitive to economic cycles, that we are an export-oriented economy, are risk factors that cause some discount of our shares.”

Hwang Keum-Dan, Market Analyst At Samsung Securities:

“Geopolitical risks still exist in South Korea, and that means South Korea's risk discounts also exist. The South Korean market is still in transition to becoming a developed market, and this is one reason why the discount exists, as emerging market shares in general tend to be discounted compared to developed market shares. South Korea's sensitivity to forex swings is also one of the key factors that causes a discount.”

Subscribe to The China Post and save 25%. Click here

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email