My first trip to Seoul happened during the bitterly cold winter of 2004. Working at Standard Chartered then, I was among the first wave of executives sent over following the acquisition of Korea First Bank (KFB).
Originally founded as Joseon Deposit Bank, it was nationalised in 1961 by the military government. It became one of the five largest commercial banks in South Korea. During the Asian Financial Crisis, which sparked a liquidity crisis, it was rescued by US private equity firm Newbridge Capital. Unlike the silent yet massive transfer of funds online suffered by Silicon Valley Bank or the arranged marriage of UBS and Credit Suisse put together at neck-breaking pace, banks under duress in those days lingered so for weeks or even months.
Having just emerged from darker days of authoritarianism, South Korea was just finding its first form of international expression. The Taegeuk Warriors knocked out Portugal, Italy and Spain enroute to the World Cup semi-final in 2002, cheered on by legions of Asians. The following year, historical TV drama Dae Jang Geum or “Jewel in the Palace” was spreading Korean cuisine and culture far and wide.
With just a linen suit that was always on standby in my office, I was woefully unprepared for the freezing weather. Almost right away, I was immersed into the myriad of cultural contradictions of these passionate and creative people. I learnt that the essential elements of Korean business involved the talents of singing, drinking and single-handicap golf. Alas, I do not have those genes, much less a practising cert to get onto a golf course.
We knew the acquisition of KFB would not sit down well but I was surprised at how the rank and file expressed that sentiment. At the bank HQ’s lobby, what I thought was a choir singing Christmas carols was actually the bank’s union protesting.
At the flashy Apgujeong, considered one of the country’s wealthiest neighbourhoods, the bank opened its flagship private banking branch. The occasion was graced by a galaxy of Korean celebrities, or so I was told. To my unconditioned eye, they all looked the same. The branch offers the usual plethora of services catered to the ultra-rich, I was told, except for an essential one: matchmaking.
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Over the next couple of years, I made regular trips back to Seoul, to help with the “integration” of the banks. I was always impressed by the Koreans’ fiercely competitive spirit, creativity and passion, but I was especially impressed by their technological chops — and not merely in cosmetic procedures. The only thing that limited the Koreans, I thought, was language. At a regional forum in the early 2010s, I was asked why KOSCOM (the Korean Exchange’s technology subsidiary), which had tech contracts in Cambodia and Malaysia, could not be the standard for all Asian exchanges. My response was: It would help if the manuals were in English.
Squid Game
On hindsight, that response was too presumptuous and too brusque. While surfing the Internet on your phone was an innovation started in Japan by NTT Docomo in 1999, it was Samsung Electronics and LG that would go toe to toe with Apple and Phillips. Their manuals were in English and Mandarin and whichever local language the products were to be sold. Koreans were quick and early adopters of crypto, buying hope for many, although many who bet the same on Do Kwan’s Terra Luna got burnt.
More significantly however, by providing free content in the 2000s to the Middle East and South America, K-dramas were taking root slowly but surely, long before Gangnam Style, replacing Brazilian telenovelas in emerging markets and gradually finding their way as essential entertainment with their fresh faces and good storytelling — so much so that it replaced Japan (which led pop culture in the 1980s) and Hong Kong (1990s), and conquered the Chinese market to the point that China had to restrict Korean artistes in its market and mass tourism to Korea.
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The country’s soft power has seeped into the West too, with global artistes like Blackpink (coming to Singapore mid-May), and BTS (who are just actually joining the real Korean Army) commanding legions of fans worldwide known simply as “The Army”. The growing popularity of Korea has also drawn tourists from far and wide. During my last trip last September, the tourist hordes were already back at Myeongdong. While the overseas shoppers were mainly from China, I noticed that the Korean cosmetics industry’s customer base has become more global, rather than focused almost exclusively on the Chinese. After all, as a staunch US ally, the Lotte shops in China were boycotted in 2017 because the South Korean conglomerate’s land was used in part for the THAAD missile defence. China has just this week protested South Korean President Yoon Suk Yeol’s characterisation of Taiwan.
Meanwhile, the domestic economy is struggling along with the KOSPI’s poor performance and the buffeting suffered by the won, which rises and falls in tandem with the Japanese yen, its competition in exports. South Koreans are already putting in one of the world’s longest working hours, but in March, President Yoon, in a bid to revive the economy, proposed to raise the weekly cap from 52 hours to 69 hours, triggering protests around Seoul City Hall every weekend. In contrast, the French are still enjoying their 35-hour work week, and several Western economies have “woke” conversations about working just four days a week while retaining the flexibility of remote working. With persistently high youth unemployment, food and energy inflation and crushing rental rates in Seoul, life for many Korean businesses and workers is sadly like a Squid Game.
Like back in 2005, the South Korean capital and currency markets are still relatively inaccessible to global investors, and painful for tourists without a YouTrip or Trust credit card. It is no wonder that Korean biotech firms and regional consumer companies are exploring private equity fund raising and IPOs outside of Korea. What may be more surprising is that some of these are finding their way to Singapore, even as our own homegrown companies, including Mirxes, spun off from A*Star, has reportedly yet to commit to Singapore but continues to flirt with Hong Kong instead.
Crash Landing on You
There are some applications to markets from my observations of K-waves over the years. A walk down K-Star Road in Gangnam’s Rodeo Drive tells a tale of venerable popular groups who led the first waves such as Super Junior or Girls’ Generation. Alongside SHINee, 4Minute or 2PM, a number of the GangnamDols have all but faded away.
Buying popular stocks is like chasing popular stars. They may be good for an initial ride, but eventually they come to pass. It is interesting that Korean innovations in the last couple of years include tokenisation of new records, song releases and speculative bubbles that can lead to quick profits for the lucky and a whole lot of fans holding memorabilia — in this case, NFTs in the metaverse. While there is financial application for how decentralised crowdfunding innovation can support new ideas and products or businesses, the promoters of many of these sold stories similar to ICOs (initial coin offerings) in 2018–2019, or the Tulip mania centuries ago.
In more mainstream investing, Tesla’s stock price, up 50% this year while still down 50% from a year ago continues to be a bit of a yo-yo — just like how Elon Musk is pulled in all directions. The 10% drop last week can be ascribed as much to the reduced sales prices for cars as to SpaceX’s launch blowing up, or to the ongoing saga around Twitter’s blue ticks. Whether the estimated 49x P/E ratio is appropriate for the company is an investment judgment — which I would personally rather sit out. But mostly the noise of everything else its founder does that is unrelated to the company’s performance drives its near-term price.
Given the positive year-to-date performance for the year, analysts, following some disappointment in Telsa’s most recent quarter’s earnings, opportunistically reduced their Tesla target prices from around US$200 ($266) to US$192 last week — except for Cathy Wood of ARK Investment Management, who raised it from US$1,533 to US$2,000 instead. Having watched a recent Netflix documentary on Korean religious cults, I am starting to understand both believers’ psychology, as well as the fact that I have not drunk the kool-aid yet. Full marks for conviction, however.
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Katie Martin, in her recent column in The Financial Times titled “Stocks continue to stay airborne despite investors’ fears over a crash landing”, had Citi’s global market strategist Matt King pointing out that market moves this year have a decidedly “QE-like feel to them”. According to his research, central banks have added US$11 trillion to global liquidity, or de facto quantitative easing, adding 10% to equities. Strip that away and the 8% gain in the S&P and MSCI World is in negative territory. The combination from Bank of Japan’s US$200 billion holdings on bonds and the Fed’s Silicon Valley Bank special measures reversed two-thirds of the US central bank’s balance sheet reduction that had been taken out prior.
The most recent April survey of fund managers by the Bank of America painted a bearish picture, with 63% of them expecting the economy to weaken — up from just 50% in March. In addition, allocations to bonds have shot up to the biggest overweight position since March 2009. Perhaps some are taking advantage of a rate cycle that is peaking to lock in good credit where it can be found. Or perhaps it is a harbinger of Western equity markets to come.
Secret Garden
Coming back from Korea, I have found, like my previous trips, the Straits Times Index boringly reassuring. It stayed around 3,320 points, not quite the rally to 3,400 I was hoping for, with the local banks playing catch-up on 1Q winners (covered in my April 10 column, “The Long March”). Indeed Oversea-Chinese Banking Corp, DBS Group Holdings and United Overseas Bank did have their run of 2%–4% up before settling back again, whilst Venture Corp and Thai Beverage rallied 7% before easing. Whilst this was taking place, Sembcorp Industries and Singapore Technologies Engineering dipped 5% before rallying back, and the Singapore Exchange Group had a 7% pop up. Lots of safe action in the intermission.
Keppel Corp, one of the stars covered in my “The Phoenix” column in the March 27 issue, continued its secular rally as its corporate transformation continued to pay off. After giving shareholders a Sembcorp Marine windfall through its dividend-in-specie, it has rallied almost 30%. As we start meandering through the record heat wave of up to 45°C in parts of Asia, even before the summer starts, let’s not forget the Secret Garden right here at home, where more fruits are getting ripe for the picking.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
