{"id":17146,"date":"2019-10-10T09:00:14","date_gmt":"2019-10-10T13:00:14","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/pension-podcast-how-can-institutional-investors-capture-south-koreas-next-wave-of-growth-136833"},"modified":"2019-10-10T09:00:14","modified_gmt":"2019-10-10T13:00:14","slug":"pension-podcast-how-can-institutional-investors-capture-south-koreas-next-wave-of-growth","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/10\/10\/pension-podcast-how-can-institutional-investors-capture-south-koreas-next-wave-of-growth\/","title":{"rendered":"Pension Podcast: How can institutional investors capture South Korea\u2019s next wave of growth?"},"content":{"rendered":"\n
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\"97924316_s123RF\" <\/div>\n<\/p><\/div>\n

Martha Porado<\/span> | October 10, 2019 <\/p>\n

Looking at South Korea today, it\u2019s hard to believe the country was one of the world\u2019s poorest just a few decades ago.<\/p>\n

But since the 1960s, its economy has been growing quickly. \u201cIn fact, from the mid-1960s to the mid-1970s, it had one of the highest growth rates in the world, and at times in the \u201880s it had the highest growth rate in the world,\u201d said Michael Seth, professor of history at James Madison University, during the Canadian Investment Review\u2019s <\/em>podcast \u201cPension Passport.\u201d<\/em><\/p>\n

\u201cThis came rather unexpectedly by most outside experts. And it was certainly unprecedented that any developing country should transform itself as fast as South Korea. What drove it was a number of factors. But partly, it was that the South Korean government \u2014 that played a big role in planning economic development \u2014 hit upon some good strategies, which included export-oriented economic development, encouraging foreign investment and investing heavily in education.\u201d<\/p>\n

Read: Are institutional investors about to dive back into emerging markets?<\/a><\/strong><\/p>\n

In the 1990s, South Korea experienced a blip in its growth, caused by the Asian financial crisis, said Seth. \u201cIt was response to a financial crisis that began in Thailand and spread throughout Asia. And that financial crisis forced the South Korean government to carry out financial regulatory reforms that needed to be carried out.\u201d<\/p>\n

These reforms meant South Korea was relatively insulated from the chaos that later ensued during the global financial crisis, he noted. \u201cThe problems that Western countries had \u2014 like in United States and Europe with the banking system \u2014 the Koreans had already tackled that.\u201d<\/p>\n

But the country still faces economic risks, said Troy Stangarone, director of congressional affairs and trade at the Korea Economic Institute, also speaking during the podcast.<\/p>\n

Read: Which emerging markets should investors be considering?<\/a><\/strong><\/p>\n

For one, the country is heavily dependent on international trade, specifically trading semi-conductors. \u201cAnd so you have this challenge that now that we\u2019re going through this period where demand is declining for these types of semiconductors,\u201d said Stangarone. \u201cYou\u2019ve seen prices drop, you\u2019ve seen exports in terms of volume drop. And so, that\u2019s really hit, in the short term, the South Korean economy.\u201d<\/p>\n

Further, trade tension between the U.S. and China is slowing global growth generally and creating a lag in demand for imports from South Korea to China, he added.<\/p>\n

While the trade war poses risks to South Korea, it could also have benefits, said Michael Oh, portfolio manager at Matthews Asia, during the podcast. \u201cFor example, some of the key exports that South Korea is producing are the semi-conductor components and they actually do export a lot to China. But at the same time, they do compete against Chinese companies on the devices level, so the smartphones, 5G telecoms. As this conflict expands, Korean companies could be negatively impacted when it comes to components, but they would actually benefit when it comes to devices. And any slack that is left by the Chinese companies could be picked up by other device makers. So at the end, I think South Korean companies might actually benefit if this ongoing trade issue persists between the U.S. and China.\u201d<\/p>\n

Read: Geopolitical tensions high on investors\u2019 list when examining emerging markets<\/a><\/strong><\/p>\n

Another economic challenge for the country is its government\u2019s recent increases to minimum wage, which is too much elevation too quickly for businesses \u2014 especially small- and mid-size ones \u2014 not to feel the crunch, said Stangarone.<\/p>\n

These types of policies may be why the economy in South Korea saw a downturn in the first quarter of 2019, said Oh. \u201cI think the general direction is correct, by raising the minimum wage, but I think the pace has just been a little too fast. And it doesn\u2019t take the experts to figure out that if you raise the wages too much, too fast then actually that\u2019s going to hurt the employment and the domestic sentiment.\u201d<\/p>\n

However, Oh said this can also present an opportunity for investors because it\u2019s made valuations attractive for those with long-term time horizons.<\/p>\n

South Korea also faces demographic challenges, noted Stangarone. \u201cYou have an aging population that, according to [United Nations\u2019] projections, between now and 2040 will potentially lose between about a quarter and a half of its working-age population. So that\u2019s going to mean significant change in both the structure of the South Korean economy and also the challenges that the government will face in terms of things like pension and health care.\u201d<\/p>\n

Read: How emerging markets can address the retirement challenge<\/a><\/strong><\/p>\n

However, this also presents opportunities for foreign investors in health care, he added.<\/p>\n

It\u2019s important to look beyond big names when considering health care and other sectors, noted Oh. \u201cI would encourage investors to look just beyond some of the very well-known exporters in the country. The valuation is very attractive \u2014 not just compared to emerging markets, but if you actually compare South Korea to other developed countries as well, the valuation is attractive. You\u2019re basically buying world-class companies at a pretty substantial discount and, at the same time, the corporate governance has been improving.<\/p>\n

\u201cKorea has one of the best financial accounting practices in the region with very transparent financial systems now.\u201d<\/p>\n

Listen to the full season of \u201cPension Passport\u201d<\/em> at <\/em>investmentreview.com\/podcasts<\/a>. <\/em>Or download the podcast on Apple<\/a>, Google Podcasts<\/a> and Stitcher<\/a>.<\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Martha Porado | October 10, 2019 Looking at South Korea today, it\u2019s hard to believe the country was one of the world\u2019s poorest just a few decades ago. But since the 1960s, its economy has been...<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/17146"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=17146"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/17146\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=17146"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=17146"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=17146"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}