{"id":2196142,"date":"2022-05-17T19:27:14","date_gmt":"2022-05-17T10:27:14","guid":{"rendered":"https:\/\/www.nknews.org\/pro\/?p=2196142"},"modified":"2023-04-05T16:12:23","modified_gmt":"2023-04-05T07:12:23","slug":"capitalism-with-south-korean-characteristics","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/","title":{"rendered":"Capitalism with South Korean characteristics"},"content":{"rendered":"

One of the features of capitalism in South Korea is that a handful of large conglomerates \u2013 chaebol \u2013 account for a disproportionate share of GDP and financial markets. The families that run Samsung, Hyundai, and other chaebol use of all manner of devices, such as cross-shareholdings between subsidiaries, that allow them to retain control despite only owning, for instance, five or ten percent of outstanding shares.\u00a0<\/span><\/p>\n

As a result, the South Korean stock market has more than a hundred examples of listed non-voting shares, known as \u201cPreferred Stock\u201d (\uc6b0\uc120\uc8fc).\u00a0<\/span><\/p>\n

The same phenomenon can be seen stateside. Investors in tech giant Alphabet (still known to everyone else as Google) are sometimes surprised to learn that the company has two different classes of Nasdaq-listed stock available to trade. The two even go for slightly different prices \u2013 at the time of writing, one share of \u2018GOOG\u2019 costs $2313.20, and \u2018GOOGL\u2019 fetches $2314.93.\u00a0<\/span><\/p>\n

This is because GOOGL comes with voting rights, and GOOG does not. This structure has been in place since 2014 to allow Google\u2019s co-founders to retain control of the company even though they are no longer majority shareholders. For most investors, who of course have neither the inclination or means to influence who runs Alphabet and how, GOOG and GOOGL are exactly the same in practical terms. Resultingly the price differential between the two is less than one-tenth of one percent, so small as to be almost insignificant.<\/span><\/p>\n

\"\"

Gangnam is one of Seoul’s main financial centers | Image: Wikimedia Commons<\/a><\/p><\/div>\n

Meanwhile in South Korea, Preferreds began to grow in popularity in the 1980s and 90s, when many large Korean chaebols were required to reduce their debt loads. One obvious way to do that ensuring control for the families at the top of these groups was to issue Preferreds, enticing buyers with slightly higher dividends.\u00a0<\/span><\/p>\n

Hyundai Motor Ordinary stock, for example, paid shareholders 5,000 won per share last year, but holders of Hyundai Motor Preferreds received 5,050 won. Whatever the Ordinary stock pays, the Preferred gives the investor 50 won more. The economic difference between these two stocks is simply that \u2013 the higher dividend offered by the latter. Both have equal claim over the assets and future cash flows generated by the company.<\/span><\/p>\n

One would therefore expect the price of Hyundai Motor Ordinary and Preferred shares to be very similar, but unfortunately for long-term holders of Hyundai Preferreds, this is not the case.\u00a0<\/span><\/p>\n

For a number of reasons \u2013 historically low trading volume, a lack of awareness, or a lack of enough Preferred stock in circulation to justify large hedge funds and investment funds from taking big positions \u2013 the prices of many Preferreds have not kept up with their Ordinary equivalents.\u00a0<\/span><\/p>\n

Therein lies the opportunity today: Hyundai Motor, for example, trades at 182,500 won per share, whilst the Preferred languishes at 92,800.\u00a0<\/span><\/p>\n

Again, both shares have the same underlying economic value. The dividend yield of the Ordinary is 2.74% though, and the Preferred, being much cheaper, offers 5.45% and sits at a measly price-earnings ratio of 5.2. Hyundai Motor is a world-class automaker, so for long-term investors concerned with value, the Preferreds are a no-brainer.<\/span><\/p>\n

\"\"

The Hyundai Grandeur is one of South Korea’s best selling cars | Image: Wikimedia Commons<\/a><\/p><\/div>\n

It is common to see price discrepancies of 50 or 60% between Ordinaries and Preferreds. Beverage company Lotte Chilsung\u2019s Preferred is 58% off, cosmetics maker Amorepacific 57% and Samsung SDI and LG Electronics both 50%.\u00a0<\/span><\/p>\n

Such discrepancies would appear to contravene the idea of efficient markets, and as such, there has been a growth in interest over the past few years in Korean Preferreds as a glaring example of exploitable mispricing.\u00a0<\/span><\/p>\n

There is one London-listed fund named Weiss Korea Opportunity Fund which was created for that very purpose, and which claims growth of 167.3 percent since its creation in 2013, against a rise in the MSCI Korea index of just 72.2%. There is also a Korea-listed ETF \u201cTIGER Prefered Stoc,\u201d run by local investment management firm Mirae Asset, which more or less tracked South Korea\u2019s primary KOSPI market index since its launch in 2017, but then started to outperform after the market rebound of spring 2020.<\/span><\/p>\n

Despite these encouraging signs, the gap is still very wide. Discounts of 50 or 60% are far too generous as compensation for relative illiquidity and a lack of voting rights, and yet they persist, making it worth asking if the big payoff will ever come; \u201cIn the long run, we are all dead\u201d, as John Maynard Keynes\u2019s <\/span>maxim<\/span><\/a> goes.\u00a0<\/span><\/p>\n

\"\"

Cherry blossoms in Seoul | Image: Jeon Han via Republic of Korea Flickr<\/a><\/p><\/div>\n

STABLE OUTLOOK<\/b><\/p>\n

There are potential catalysts though. The \u201cG\u201d part of the environmental, social and governance (ESG) trend is forcing even chaebols to consider minority shareholders\u2019 interests. Samsung Electronics has a policy of buying back its Preferreds if the discount exceeds 10%; this is a highly efficient way of increasing earnings per share and returning money to shareholders. If more boards start to do this, discounted Preferreds should greatly outperform the market.\u00a0<\/span><\/p>\n

Perhaps more significantly, the coming retirement of the large baby boomer cohort of Koreans is resulting in greater interest in stable, quality dividend stocks, particularly in an environment of high inflation, low pensions and uncertainty. More and more retail investors are now willing to swoop opportunistically on high yields, so provided the underlying company is in decent health, a high dividend Preferred offers a margin of safety that its corresponding Ordinary share cannot.\u00a0<\/span><\/p>\n

In the short- and medium-term, investors can sit on Preferreds and collect good dividend yields, comforted by the knowledge that they are more protected on the downside than those with Ordinary shares – whilst crossing their fingers for a great upward revaluation in the long term. The latter part may never come, but the former is itself very attractive.\u00a0<\/span><\/p>\n

Edited by Arius Derr<\/em><\/p>\n

Business & Economy<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

One of the features of capitalism in South Korea is that a handful of large conglomerates \u2013 chaebol \u2013 account for a disproportionate share of GDP and financial markets. The families that run Samsung, Hyundai, and other chaebol use of all manner of devices, such as cross-shareholdings between subsidiaries, that allow them to retain control […]<\/p>\n","protected":false},"author":3665,"featured_media":2196150,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24],"class_list":["post-2196142","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-business-economy"],"yoast_head":"\nCapitalism with South Korean characteristics - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Capitalism with South Korean characteristics - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"One of the features of capitalism in South Korea is that a handful of large conglomerates \u2013 chaebol \u2013 account for a disproportionate share of GDP and financial markets. The families that run Samsung, Hyundai, and other chaebol use of all manner of devices, such as cross-shareholdings between subsidiaries, that allow them to retain control […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\" \/>\n<meta property=\"og:site_name\" content=\"KOREA PRO\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/nknewsorg\/\" \/>\n<meta property=\"article:published_time\" content=\"2022-05-17T10:27:14+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-04-05T07:12:23+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1860\" \/>\n\t<meta property=\"og:image:height\" content=\"1000\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Bishawjit\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@southkoreapro\" \/>\n<meta name=\"twitter:site\" content=\"@southkoreapro\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Daniel Tudor\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\"},\"author\":{\"name\":\"Bishawjit\",\"@id\":\"https:\/\/koreapro.org\/#\/schema\/person\/313e6f940bf1ae7b8cc487ec00b1b562\"},\"headline\":\"Capitalism with South Korean characteristics\",\"datePublished\":\"2022-05-17T10:27:14+00:00\",\"dateModified\":\"2023-04-05T07:12:23+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\"},\"wordCount\":976,\"publisher\":{\"@id\":\"https:\/\/koreapro.org\/#organization\"},\"image\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg\",\"keywords\":[\"Business & Economy\"],\"articleSection\":[\"Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\",\"url\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\",\"name\":\"Capitalism with South Korean characteristics - KOREA PRO\",\"isPartOf\":{\"@id\":\"https:\/\/koreapro.org\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg\",\"datePublished\":\"2022-05-17T10:27:14+00:00\",\"dateModified\":\"2023-04-05T07:12:23+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage\",\"url\":\"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg\",\"contentUrl\":\"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg\",\"width\":1860,\"height\":1000,\"caption\":\"A stock market screen | Image: Pixabay\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/koreapro.org\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Capitalism with South Korean characteristics\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/koreapro.org\/#website\",\"url\":\"https:\/\/koreapro.org\/\",\"name\":\"KOREA PRO\",\"description\":\"Be smart about South Korea. Up-to-date analysis on foreign relations, politics, society and economy. Made by the producers of NK PRO and NK News.\",\"publisher\":{\"@id\":\"https:\/\/koreapro.org\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/koreapro.org\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/koreapro.org\/#organization\",\"name\":\"KOREA PRO\",\"url\":\"https:\/\/koreapro.org\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/koreapro.org\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/11\/logo.png\",\"contentUrl\":\"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/11\/logo.png\",\"width\":360,\"height\":50,\"caption\":\"KOREA PRO\"},\"image\":{\"@id\":\"https:\/\/koreapro.org\/#\/schema\/logo\/image\/\"},\"sameAs\":[\"https:\/\/www.facebook.com\/nknewsorg\/\",\"https:\/\/x.com\/southkoreapro\"]}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Capitalism with South Korean characteristics - KOREA PRO","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/","og_locale":"en_US","og_type":"article","og_title":"Capitalism with South Korean characteristics - KOREA PRO","og_description":"One of the features of capitalism in South Korea is that a handful of large conglomerates \u2013 chaebol \u2013 account for a disproportionate share of GDP and financial markets. The families that run Samsung, Hyundai, and other chaebol use of all manner of devices, such as cross-shareholdings between subsidiaries, that allow them to retain control […]","og_url":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/","og_site_name":"KOREA PRO","article_publisher":"https:\/\/www.facebook.com\/nknewsorg\/","article_published_time":"2022-05-17T10:27:14+00:00","article_modified_time":"2023-04-05T07:12:23+00:00","og_image":[{"width":1860,"height":1000,"url":"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg","type":"image\/jpeg"}],"author":"Bishawjit","twitter_card":"summary_large_image","twitter_creator":"@southkoreapro","twitter_site":"@southkoreapro","twitter_misc":{"Written by":"Daniel Tudor","Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#article","isPartOf":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/"},"author":{"name":"Bishawjit","@id":"https:\/\/koreapro.org\/#\/schema\/person\/313e6f940bf1ae7b8cc487ec00b1b562"},"headline":"Capitalism with South Korean characteristics","datePublished":"2022-05-17T10:27:14+00:00","dateModified":"2023-04-05T07:12:23+00:00","mainEntityOfPage":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/"},"wordCount":976,"publisher":{"@id":"https:\/\/koreapro.org\/#organization"},"image":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage"},"thumbnailUrl":"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg","keywords":["Business & Economy"],"articleSection":["Analysis"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/","url":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/","name":"Capitalism with South Korean characteristics - KOREA PRO","isPartOf":{"@id":"https:\/\/koreapro.org\/#website"},"primaryImageOfPage":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage"},"image":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage"},"thumbnailUrl":"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg","datePublished":"2022-05-17T10:27:14+00:00","dateModified":"2023-04-05T07:12:23+00:00","breadcrumb":{"@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#primaryimage","url":"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg","contentUrl":"https:\/\/assets.korearisk.com\/uploads\/sites\/6\/2022\/05\/tudor-piece-feature-1-1.jpg","width":1860,"height":1000,"caption":"A stock market screen | Image: Pixabay"},{"@type":"BreadcrumbList","@id":"https:\/\/koreapro.org\/2022\/05\/capitalism-with-south-korean-characteristics\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/koreapro.org\/"},{"@type":"ListItem","position":2,"name":"Capitalism with South Korean characteristics"}]},{"@type":"WebSite","@id":"https:\/\/koreapro.org\/#website","url":"https:\/\/koreapro.org\/","name":"KOREA PRO","description":"Be smart about South Korea. Up-to-date analysis on foreign relations, politics, society and economy. Made by the producers of NK PRO and NK News.","publisher":{"@id":"https:\/\/koreapro.org\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/koreapro.org\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/koreapro.org\/#organization","name":"KOREA PRO","url":"https:\/\/koreapro.org\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/koreapro.org\/#\/schema\/logo\/image\/","url":"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/11\/logo.png","contentUrl":"https:\/\/koreapro.org\/wp-content\/uploads\/sites\/6\/2022\/11\/logo.png","width":360,"height":50,"caption":"KOREA PRO"},"image":{"@id":"https:\/\/koreapro.org\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/nknewsorg\/","https:\/\/x.com\/southkoreapro"]}]}},"_links":{"self":[{"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/posts\/2196142"}],"collection":[{"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/users\/3665"}],"replies":[{"embeddable":true,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/comments?post=2196142"}],"version-history":[{"count":1,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/posts\/2196142\/revisions"}],"predecessor-version":[{"id":2199437,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/posts\/2196142\/revisions\/2199437"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/media\/2196150"}],"wp:attachment":[{"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/media?parent=2196142"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/categories?post=2196142"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/koreapro.org\/wp-json\/wp\/v2\/tags?post=2196142"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}