Ira Sohn London: Andrew Weiss, President and CIO of Weiss Asset Management
Trade Idea: Korea, Hyundai Motor Co (KRX:005385) (OTCMKTS:HYMLF)
Valuation: 6.9 times earnings ordinary shares, 3.1x earnings for the preferred
Andrew Weiss on Korean stocks
Stocks are cheap compared to similar markets. Growth prospects, six times more graduates entering the work market than leaving. The best numeracy and literacy test scores of developed nations. Well developed infrastructure. Debt to GDP is 36%, less than 8% if you net out FX reserves and gold. Budget surplus for the past ten years. North Korea benefits the South Korea due to cheap labor within enterprise zones. Estimated to be more than $9 trillion of natural resources within North Korea. North Korea desperate for cash so partnerships with the south are needed. Cheap natural resources from North Korea, also possibility for a natural gas pipeline from Russia to South Korea. Good management within South Korea and plenty of resources + cheap labor from North Korea are good for South Korea. Buy why South Korea now? Changing corporate governance is benefiting shareholders. Regulations to stop insider dealing. Made it illegal for judges to give suspended jail terms from management that mistreats investors, (must be sent to jail).
Korean national pension service has to invest 20% of assets in national stock market. Around $2 trillion in assets to invest. Already owns 60% of the whole market. Is trying to gain a say in how companies it invests in are run by seeking seats on the board. Aging population saving, a fundamental change, older people used to invest in property but now new organizations are coming to light that invest in the stock market instead.
Preferred stock is good choice. South Korean preferred have same rights as ordinary apart from voting, can only vote on issues that affect preferred. Preferred trade a huge 50% discount to ordinary. Korean preferreds have got cheaper relative to ordinaries over the past few years. Average projected gain if preferreds moved to the same valuation as ordinaries, upside would be 150% on average.