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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

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Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

OCTOBER 8, 1999 VOL. 25 NO. 40

Counting on Korea
Stocks will rise - if restructuring continues


Share prices in the U.S. are falling steeply. Taiwan has been rocked by a massive earthquake and strong aftershocks. Japan's economic recovery is under threat from a strengthening yen. What do all these mean to Asia? They can be good for South Korea, says Park Hyeon Joo, CEO and chief fund manager of Mirae Asset Investment Management in Seoul. He manages about 3.4 trillion won - $2.8 billion - invested primarily in Korean stocks. A business management graduate from Korea University, Park, 41, spoke with Asiaweek's Laxmi Nakarmi.



So long as the downturn is not too violent, Park Hyeon Joo sees happier days ahead for the local stock market. Among Park's picks: POSCO, Korea Telecom and Samsung
 
Both the Dow and NASDAQ have seen big declines.
We will benefit as long as the volatility remains limited. Declines in the Dow and NASDAQ can send some bargain hunters to Korea, where you can still buy undervalued blue chips.

What about the Taiwan earthquake?
In the first half of this year, foreign investors rushed to Taiwan because of potential gains by companies there in such areas as semiconductors and display devices. The long-term impact of the quake is not known yet, but some investors may come under pressure to leave. Korea offers them the right opportunities. Companies like Samsung Electronics will enjoy higher demand for chips and display devices. The contract period for the supply of Samsung chips is shortening rapidly. This means Samsung could benefit from spot prices, which are far higher than long-term supply contract prices.

And the strong yen?
Asian stock markets gain whenever the yen is strong. Conversely, the markets decline whenever the dollar is strong. After Robert Rubin became U.S. treasury secretary in 1994, he pursued a strong-dollar policy. Asian markets suffered. Closer to home, the high yen boosts the price competitiveness of Korean electronics, semiconductors, automobiles and steel. Companies in these sectors should benefit in terms of higher exports. We believe that the yen could rise further as Japan continues to hesitate in stimulating the economy. It may even break the 100-to-one-dollar barrier.

Why are you so bullish on Korea?
We have been restructuring the economy. Some disagree with the pace and others with the content. But I see a healthy trend: new corporate governance with emphasis on rational financial management. We have seen this in the way the government handled troubled Daewoo. The government could have left it out [of the restructuring], reasoning that Daewoo is too big to fail. But it moved to shake up the conglomerate, removing one uncertainty in the market. Foreign investors did not run away. More, in fact, are coming in.

Secondly, Korean households have not really begun to invest in stocks. About 4% are in the market, compared with 25% in Japan and 50% in the U.S. I expect the ratio to rise to 10% next year. What this means is that there is tremendous potential for a rise in demand for stocks. Once corporate governance improves and companies follow globally accepted management standards, Koreans will invest more actively and for the long-term. I am seeing this in our funds. We have begun marketing mutual funds with three-year maturities and considering an index fund with a 30-year maturity. In the past, you could not even imagine this.

Is Korea's economic recovery for real?
Some inflation may be unavoidable. But we are not in a full employment situation and domestic demand is far from overheating. The rise in oil and housing prices could push up inflation, but not to an alarming degree. Another notion in Korea is that economic growth [comes with] real-estate speculation. It was true in the past, but people now tend to invest in financial assets, where the relative return is higher than from property.

What sectors do you like?
I go for technology-based manufacturing stocks, as well as information and telecommunications companies. I avoid the financial sector, which has just too many problems. I have investments in nearly all blue chips like Samsung Electronics, steelmaker POSCO, Korea Telecom and Hanaro Telecom. I also have money in KOSDAQ-listed companies run by young entrepreneurs.

Did you get burnt by Daewoo?
No. We had no Daewoo bonds and no Daewoo stocks. Now Hyundai is a different story. They expanded in sectors where they have core competence, like semiconductors and automobiles. The acquisitions resulted in increased debts, but they managed to raise new equity and thus reduce their debt ratio. What is important for me is that they make money even after paying interest to creditors. Unlike Daewoo, I have Hyundai stocks in my portfolio.

What's the downside in Korea?
If politics and other reasons make us stop restructuring, we would have a half-cooked meal. Nobody wants that. I would like to see Korean companies pursue core competencies and global standards in management.

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