Re: Philip Bowring: Who owns South Korea?

From: Francisco Paulo Cipolla (cipolla@UFPR.BR)
Date: Wed Jul 21 2004 - 14:00:30 EDT

Thanks Rakesh for this very interesting article on South Korea. Is that figure
for Korean foreign reserves right? $230 billion?

Rakesh Bhandari wrote:

> from pen-l. If I remember correctly, Sukhamoy Chakravarty analyzed
> the underlying dependence of the Korean economy in the 80s.
> IHT article:
>    The International Herald Tribune
> Philip Bowring: Who owns South Korea?
> Philip Bowring IHT
> Monday, July 19, 2004
> Foreign vs. local investment
> HONG KONG At one level South Korea represents a triumph of globalization
> over economic nationalism. Yet because of the head-in-the-sand policies of
> the Seoul government this could well turn sour.
> Foreigners now own most of the commercial crown jewels of South Korea, the
> newest and seemingly most nationalist member of the developed world.
> Whether it is the world's leading chip maker and mobile phone challenger,
> Samsung Electronics, or the world's largest and most profitable steel
> producer, Pohang Iron Steel, or Korea's major financial groups Kookmin and
> Shinhan, most of Korea's high-profile companies are now more than 50
> percent owned by foreigners. In some cases the foreign stakes go above 70
> percent. Foreigners now account for 44 percent of the total Korea stock
> market capitalization of around $360 billion.
> The statistics are especially remarkable given that less than a decade ago
> foreign ownership of equity in Korean companies was highly restricted.
> Even when the nation joined the OECD in 1996, liberalization was at
> snail's pace. It took the Asian financial crisis and strong-arm IMF and
> creditor tactics to force Koreans to accept almost unrestricted foreign
> ownership.
> Koreans still often express resentment at how the sudden withdrawal of
> foreign bank lending in 1997-98 caused a collapse in the Korean currency
> and asset values. The crisis opened the way to equity capital
> liberalization and made it possible for foreigners to acquire large
> portions of Korean commerce and industry at very depressed prices.
> Nor was this just a one-time process. The foreign buying of Korea has
> continued steadily, and with occasional big waves. Over the past year some
> $25 billion in new foreign portfolio equity has arrived.
> So far there has been no major backlash. Koreans may be uncomfortable with
> the numbers, but they can take comfort from the fact that in most cases
> foreign ownership is fragmented and management control rests firmly with
> Koreans - frequently with the families of the former major shareholders.
> Still, resentment of foreigners, especially when they try to exercise
> their rights as shareholders, lurks not far below the surface.
> Yet Koreans are failing to acknowledge that they themselves now bear the
> main responsibility for the foreign capital invasion. Instead of buying
> their own companies, they are investing in government bonds, houses and
> U.S. debt.
> Despite foreign buying, Korean equities continue to be priced at a
> fraction of overseas equivalents. The Korean stock market is selling on
> nine times its historic earnings compared with 21 for the S&P 500, 14 for
> London, 15 for Taiwan, 16 for Hong Kong or 32 for Japan. The foreign
> owners are even collecting dividend yields of around 2.5 percent - as much
> as Koreans are earning on their massive holdings of short-term U.S. debt.
> The fact is that individual Korean savers are put off equity investment by
> the volatility of the market, and by memories of 1997. In turn, volatility
> is a result of the lack of Korean institutional investment, which is a
> direct result of laws forcing the majority of Korea's vast household
> savings held in insurance and pension funds into bonds and fixed deposits.
> While foreigners buy their farm, Koreans are buying bonds.
> The situation grows more ridiculous by the day. The government is in the
> process of issuing vast quantities of won-denominated bonds as a "war
> chest" in order to be able to sell won and buy dollars to prevent the
> exchange rate from appreciating. This obsession with maintaining an
> undervalued currency will result in further expansion of bloated foreign
> reserves. These are now $230 billion - far more than the foreigners have
> spent acquiring their 44 percent of Korean equities.
> The Korean government's failure to let market forces determine the
> exchange rate is leading directly to the foreign acquisition of Korean
> assets by keeping them cheap in dollar terms and channeling Korean savings
> into U.S. consumer debt rather than into ownership of the true pride of
> Korea - Samsung, POSCO, etc.
> Such dumb policies could spark both a nationalist backlash in Korea and a
> trade backlash by Korea's trading partners.
> IHT Copyright  2004 The International Herald Tribune |

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