From the beginning of February through March 23, the Korean Won depreciated more than 9% versus the US dollar as South Korea was one of the countries with highest confirmed COVID cases outside of China. At the same time, the equity market was experiencing the same free fall as the rest of the world. Fast forward to today, and South Korea not only managed to limit the number of COVID-19 related deaths below 300; its equity market has been one of the fastest to recover.
South Korea has long been considered an industrial and manufacturing powerhouse in Asia, and its equity markets are dominated by large conglomerates such as Samsung, LG, Hyundai and SK.
But the last 10 years have seen a dramatic shift in the equity markets where new economy industries such Technology and Health Care are representing a larger part of the listed market-cap. New companies such as Kakao (Whatsapp equivalent) and Celltrion (Biotech) now have higher gross market caps than established companies such as Hyundai Motors and LG Electronics.
Tech and Health Care have had better performance over the last 10 years then both Basic Material and Industrials. The latter Industries have posted negative returns over the time-period.
Taking a regional perspective, Korea as an equity market has been underperforming its peers the last 10 years and has been trading at a constant valuation discount. Large conglomerates represent +60% of the FTSE Korea Index, and the companies often have complex cross ownership structures. As highlighted in the red circles below, there has been a reversal in both relative performance and valuations lately.
Having a closer look at the Industry performance since March 23 shows a strong comeback from the forgotten old economy Industries as they have outperformed the historically strong Health Care and Technology Industries. It’s too early to conclude if this is a long-term revival or a short-term recovery.
Originally Posted on June 25, 2020 – Industry Shifts Reshaping South Korea
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