WeChat*** brocade (ID: jinduan006), author: Qixin, title picture from: Visual China South Korea** has lost the meaning of the economic barometer.
Since 2020, most of the world's ** have risen in voice, while South Korea** has stood still. In fact, South Korea** is not small, with a total market value of nearly 2 trillion US dollars, and is one of the most important markets in the Asia-Pacific region.
In fact, not only in the past 3 years, but if you look at it in an extended dimension, South Korea's ** has basically not risen for more than ten years. From the beginning of 2012 to the end of 2023, the South Korean ** index has risen from 1832 to 2655, with a cumulative increase of more than 40% and a 12-year annualized yield of 3%, which is basically at the same level as South Korean inflation. But at the same time, it needs to be considered that in this range, the South Korean won has depreciated by 20%, and if it is denominated in US dollars, the annualized increase of Korean stocks is more than 1%, and even inflation has not outperformed.
In February, South Korea's financial sector officially decided to implement a value up program to address the country's low valuations.
It is said that ** is the barometer of the economy, theoretically** will amplify the fluctuations of the economy, when the economy is up, the market tends to perform more brightly. So is there a problem with South Korea's economic development in the past ten years?
According to the latest data, in fact, although South Korea's economic growth has slowed down in the past ten years, its performance is still remarkableThe compound annual growth rate of national GDP (in US dollar terms) reached 24%, and the per capita GDP growth from the perspective of purchasing power parity is 38%, which is basically the same as the level of the United States in the same range. On the other hand, Japan, which is separated by a water, has been bullish for ten years since 2012, and the compound annual growth rate of Japan's GDP and per capita GDP during this period was only 05% and 07%。
Ironically, it is precisely because of the good fundamentals of South Korea's economy that in 2021, the United Nations officially recognized South Korea as a developed country for the first time in nearly 60 years.
The economic data is stable and positive, and the United Nations has stamped and certified, but South Korea** has been defending 2,500 points contrary to economic fundamentals, which may be more enlightening than analyzing the Japanese market. Taking our neighbors as a mirror, we will try to solve the mystery of South Korea's failure to rise for ten years.
First, South Korea's first downturn breaks through the traditional cognition.
Why South Korea's ** has not risen, those conjectures that go straight to the bottom don't seem to explain any of them.
1.Is the market not mature enough?
For the poor performance of a country's ** market, the conclusion often given by the academic community is that the market is not mature enough, especially for emerging markets. But in fact, South Korea was established in the 50s of the last century, and it has a history of more than 70 years, and it is difficult to say that this ** city is not "mature" enough; Especially after 1990, South Korea** has been fully open to global investors, and 100% of it is included in MSCI.
After 2000, South Korea has also experienced a wave of institutionalization, with foreign institutional investors, domestic pensions, and domestic institutions gradually becoming the most important participants in the market; It should be emphasized that although Koreans do love to gamble, it is different from many domestic ** renderingsThe pricer of South Korea is no longer the first, but a professional investment institution at home and abroad. For example, at its peak, foreign investors held more than 40% of the South Korean market, and recently they still hold 32%.
What's even more interesting is,Although the money-making effect is very average, the liquidity of South Korea** can be said to be very good, so there is no objective obstacle to value discovery. Taking the 2023 trading data as an example, South Korea contributes nearly double the trading volume with less than 3% of the total market value of Hong Kong stocks. By comparing Asia Pacific ** side-by-side, we were even a little surprised to find that South Korea is not only free of liquidity black holes, but is one of the most actively traded markets.
South Korean investors can be said to have worked very hard to defend 2,500 points of real gold.
Chart: South Korea** market liquidity compared to other markets in Asia Pacific, wind
2.Is it because the starting point valuation is too high and has been digesting bubbles in the past?
High valuations are the natural enemy of returns, and even the invincible Nasdaq took 15 years to digest the 2000 dot-com bubble. Therefore, senior investors naturally have to ask, is it that the expectations for South Korea were too high back then, resulting in a high starting point for valuation?
The answer is a big surpriseValuations in the South Korean market have been hovering at low levelsIn 2012, the starting valuation was 15 to 20 times the P/E ratio, which is not a very high water mark; As of recently, the overall price-to-earnings ratio of South Korean stocks remained roughly similar to 2012 levels. If you deduct the relatively high valuation sectors such as batteries and medical care, most of the sub-sectors of the South Korean ** market are valued at around 10 times PE.
In terms of horizontal comparison, South Korea can even be considered an "undervalued market". In the South Korean market, nearly 40% of PBs are below 05. There are 70% of **PB below 10。How exaggerated is this figure, the Japanese market PB is less than 1The number of 0s accounts for less than 40%, the European representative index is only 20%, and the S&P 500 is less than 5%; Even Hong Kong stocks, which are labeled as "the cheapest market in the world", are only about 65%, and you have to call your big brother when you see Korean stocks.
In the past ten years, Korean stocks have not only not digested high valuations, but have fallen deeper and deeper into the quagmire of low valuations; With the glory of Japan** next door, it is not difficult for us to understand why South Korea** can't sit still and engage in a value enhancement plan.
Chart: South Korea's ** Historical PE Valuation Levels, Wind.
3.Is there no successful industrial transformation and no excellent company?
From the perspective of industrial development, at the beginning of the 20th century, Japan was due to the decline of traditional advantageous industries and the repeated miss of emerging industries, and Japan ushered in the lost 30 years, and the first was silent.
Is South Korea similar, encountering the "developed country trap"? The truth is a mixed bag,South Korea is arguably an extremely hardworking country, with its R&D intensity (R&D spending GDP) rising in the past and reaching 5%., which is only slightly lower than Israel and even higher than the United States among developed countries, ranking second among developed countries.
Under the vigorous transformation, South Korea's advantageous industries have long been transformed from shipbuilding and chemical industry to electronics, semiconductors, new energy, automobiles, entertainment, etc., which can be called a successful model of industrial transformation.
And Samsung, LG, Hynix, Hyundai, Lotte and other companies have also become world-renowned brands. Taking the recent wave of AI as an example, the most critical memory chip HBM is basically monopolized by Hynix and Samsung, it can be said that without the support of these two companies' HBM, this round of global computing power revolution will be completely rootless, second only to Nvidia GPU and TSMC's advanced process.
ActuallyThe market capitalization distribution of South Korea** is highly concentrated, with the top 10 companies accounting for 40% of the market capitalization and the top 30 companies accounting for 54% of the market capitalization, basically are excellent companies that have successfully transformed their industries, and even these excellent companies that represent emerging industry trends have not been able to drive South Korea's ** to prosperity.
Chart: R&D spending in South Korea continues to increase, Statistics Korea, Kokhae**.
Second, the real cause of South Korea's ** downturn.
So what is the real reason? Returning to the first principles, the most fundamental source of investment benefits is still to rely on the company to generate cash flow and reasonably return the cash flow to shareholders. From this point of view, it is not difficult to find the right solution.
1.There is a significant lack of focus on shareholder returns.
In addition to widening the gap between the rich and the poor, the negative impact of the chaebol on the market lies in the fact that under the poor governance model, it will naturally ignore the returns of shareholders, especially small and medium-sized shareholders. So although South Korea's economy is stable and improving, and excellent companies are thriving, this has little to do with small and medium-sized shareholders.
According to the latest analysis of foreign brokerages, among the 20 stocks with the highest dividend yield in South Korea in 2024**, the dividend yield of Dongdong Insurance, which ranks first, is 90%, ranking 20th SFA is only 43%, the company with the highest shareholder return is still like this, and the overall shareholder return can be glimpsed. In this regard, Hong Kong stocks also have to call Korean stocks a big brother again.
According to statistics, between 2012 and 2023, the dividend yield of the overall Korean market is 10%~2.Fluctuations between 5%, basically equal to nothing, for **buy** is basically equivalent to taking over the country.
Why are high dividends so important? On the one hand, this is a direct reflection of shareholder returns, and on the other hand, for the low-valued market, the expectation of its own growth is weak, so it is necessary to strengthen dividends or repurchase shares to reward shareholders.
And the Korean stock market has completely chosen to go the other way. Taking Samsung Electronics, LG Chem, and SK hynix, the three representative listed companies under Samsung, LG, and SK, a representative consortium in South Korea, as an example, if measured from the perspective of cash flow yield (cash flow return and cash flow invested by shareholders), they are basically value destroyed, of which Samsung Electronics is maintained in the range of 2% and 6%, which is already considered the tallest among the short.
2.Dilation addiction and falling into the trap of inefficiency.
Korean companies don't pay dividends, so what are the money used for? There is no other direction, that isExpansion, expansion, expansion.
South Korea, known as the "Republic of Coffee", is undoubtedly the most typical case of struggle addiction. In the early stage of development, South Korea successfully achieved a counterattack through countercyclical investments in shipbuilding, chemicals, and semiconductors. This also makes Korean companies addicted to expansion, and the chaebol system (Samsung, LG, etc.) that benefits the most, in the absence of anti-monopoly control, has even greater say than **, so that they will undoubtedly slow down and seek skin with the tiger.
How much do these companies love to expand? We still use the three representative companies mentioned above as examples for analysis. From a financial point of view, an enterprise's operating cash flow reflects its hematopoietic capacity and is the starting point of all cash flow redistribution, while capital expenditure and operating occupation are the biggest bleeding points.
If we count the capital expenditure and operating cash flow indicator, we can see that this indicator of these three companies is basically above 50% every year, which meansAt least more than half of the money that has just arrived in the pocket has been reinvested, and in many years this indicator has been higher than 100%.In other words, even if the business operation is very ordinary or even difficult, I still have to continue to play music and dance, and the expansion cannot be stopped; As for shareholder returns, it's a bit of a "I talk to you about my dreams, but you talk to me about money" moral judgment.
There was once an article about "when the balance sheet doesn't want to struggle" is widely circulated, in fact, when there is no opportunity, what is wrong with not struggling, lying flat is the biggest relative benefit. If you rush forward, it is likely that the more you try, the more you fail.
Since 2012, South Korea's economic growth has shifted gears, but the chaebol is still in the old path of continuous expansion. SoAlthough these companies are getting bigger and bigger, the end result is that ROE is trending downward.
In fact, several companies in the chart are relatively good, and the current overall ROE level of South Korea is around 6%, which is only slightly higher than 5% of Hong Kong stocks in the global market; For comparison, the ROE in the United States reached about 18%.
From an investor's point of view, investing in a low ROE market is itself a fire in the fire, and this E in ROE you will not give me a little bit through dividends, ten years to make everyone understand that the original dream of these companies is to "spend other people's money to do their own things".
After the above analysis, it is not difficult to know why the prosperity of South Korea's economy has nothing to do with **, in an expansive market that does not pay attention to small and medium-sized shareholders, even if the liquidity is good and the company is excellent, but what does this wealth have to do with these ** holders.
3.Voting with their feet, South Koreans are more likely to choose other ways to invest.
In the midst of round after round of cutting, South Koreans who are gradually sobering up have actually turned to other alternative investment methods. According to the Bank of Korea, in the past 15 years, South Korean households have accounted for less than 10% of the allocation weight (note: the United States accounts for up to 40%), and non-financial assets account for more than 60%, mainly real estate.
Koreans, as the world's most popular group of property speculation, have turned Seoul into one of the most expensive cities in the world through 3 rounds of housing prices**, and the barometer of South Korea's economic development is actually housing prices. When you think that Korean property flipping is irrational, you just don't understand their suffering.
In the 2012 to 2023 range, when South Korea defended 2,500 points, Seoul's housing prices more than doubled in the face of the great downside of population decline. If real estate is an investment product, the liquidity is much weaker than **, and the growth is weaker, so why is it that in many countries in the world, the increase in housing prices has exceeded the corresponding stock index?
The author believes that in addition to the various angles of everyone's analysis, there is another important point that has been overlookedA house is a much fairer investment.
Investors also need to pay attention to corporate governance, cash flow distribution, shareholder returns, financial fraud and other entrustment issues, the house is simple and direct, what you see is what you get, and the judgment of quality and location is very fair to everyone. In South Korea, the chaebols face a real estate market that is no different from that of ordinary people.
In addition to the national flock to real estate, due to the free flow of capital, South Koreans are buying more abroad**, such as being the top 10 shareholders of Tesla at one time, and those with a higher risk appetite have chosen cryptocurrencies.
Chart: Seoul Home Purchase Value Index - Condominiums, Bank of Korea.
Third, the point is meaningless, and there is only change.
In the past decade, South Korean individual investors, in the trend of withdrawing from the meat grinder market, buying a house is more of a helpless replacement, as the house-price-to-income ratio reaches an exaggerated level has also begun to be weak. For South Koreans, a better way to get paid than to pour eggs in a basket is to immigrate, and as the country with the highest proportion of immigrants in the world, South Korea has even more immigrants than new students in the last decade.
For this round of reform of the South Korean market, the author has reservations. What you do is more important than what you say, and it's not too late if the leading companies can slow down and increase shareholder returns. If it is still in the path dependence of expansion and discrimination against small and medium-sized shareholders, how many 10 years can South Korea** be wrongly paid, and the abundant liquidity will eventually be exhausted in voting with its feet again and again, just like the birth rate in South Korea.
WeChat*** brocade (ID: jinduan006), author: Qixin This content is the author's independent point of view and does not represent the position of Tiger Sniff. Do not do without permission**, please contact hezuo@huxiu for authorizationcom
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