Wall Street News

Stock markets and oil prices in Asia recently saw an increase, indicating the demand for the latter could be improving.  As well, makers of electronics increased between 0.9 and 2.8 percent in Tokyo.  IN Hong Kong the Hang Seng index rose 0.4 percent but South Korea’s Kospi index was “nearly flat.”  While Australia’s S&P/ASX200 slightly increased, BHP Billiton Ltd. Saw a hit of 1.8 percent which was a marked difference from the company’s claim of over 70 percent net profit increase from last July to December.  The Dow Jones industrial average encountered its second straight day of losses on Tuesday with the Dow falling 0.3 percent.  Nasdaq fell 0.5 percent as did Standard & Poor’s 500 index which dropped 0.3 percent.  On the New York Mercantile Exchange delivery increased 35 cents a barrel in electronic trading.

Korea Loses Out as Egyptian Unrest Continues

KoreaThere are many sorts of uncertainties with the current unrest in Egypt and although many look upon the Egyptian regime as a brutal dictatorship, Korea has a successful trade relationship with Egypt to worry about. One company, Samsung has increasingly been recognized as a leader as a technology brand in Egypt. “Nokia is considered a low-end mobile phone brand in Egypt while the Samsung mobile phone is praised as a high-quality product,” said Chung Boa, 31, who has lived in Egypt for seven years.

The Korea International Trade Association reported bilateral trade last year between the two countries to be $2.8 billion. Korean exports we estimated to be $1.5 billion and imports from Egypt $1.3 billion.

“Compared to the first time I came here, Korea’s presence has grown exceptionally. There are major Korean conglomerates such as Hyundai and Samsung that are operating in Egypt.” Mr. Boa added.

Yet we spoke with Mr. Boa just before the current unrest in Egypt and with the current uprising in Egypt intensifying the 36 Korean companies in Egypt are under increasing trouble. Samsung Electronics has frozen its mobile phone sales there and LG Electronics decided to suspend its local factory operation albeit temporarily.

Since the beginning of what has become known as the January 25th Revolution, incidents of looting and arson have increased. In response all of Samsung’s local sales agencies have fled Egypt. Its major mobile phone clients are not doing their business, either. Under the circumstances, Samsung has decided to halt its marketing and promotion there altogether.

Egypt is ranked the fourth-largest export destination in the Middle East for Korean based companies after the United Arab Emirates, Iran and Saudi Arabia. Korean exports in 2010 of auto parts, synthetic resins, construction machinery, transformers, tires, storage batteries, and medicine to Egypt totalled US$2.24 billion.

South Korean Economics

If stock prices plummet and interest rates increase, South Korean households will suffer.  The Samsung Economic Research Institute (SERI)’s recent report showed a huge increase in individual debts, following the global financial crisis and a peak in loans.  But loans are not the answer since they are often based on the “floating interest rate system rather than fixed rates, which means debt levels rise when there is an increase in interest rates.” 

Figures show that South Koreans’ debts have basically increased at a steady pace in the last two years.  The government’s plan to help (debt-to-debt income ratio) is not a “proper” solution, according to the SERI report, which found that “the strict loan regulations should be regarded as part of policies to boost financial soundness of banks.”  While there has been a cap on this loan, in 2010 the government decided to raise this in an attempt to “revive the sluggish market.”  But because of the bullish stock market, assets and incomes are on the rise which has resulted in “an immediate household debt crisis.”

The report also predicted that if there is a 2% increase in interest rates, there will be an increase from 11.7 trillion to 16.1 trillion per quarter.  An increase in household debts will have to inevitably result in less spending money and thus a severe dent in the region’s economic growth.



Korean Shares Fall During Euro Fears

KOSPISeoul Stocks declined yesterday after Wall Street fell based on fears about European Government debts. Samsung and Hana Financial Group dropped and the Korea Composite Stock Price Index .KS11 (Kospi) fell 0.87 % to 2,062.73 points. Also, on Thursday, the Bank of Korea will review the interest rates. Meanwhile, the chemical industries are still doing well.

A market analyst at Woori Investment & Securities, Lawrence Kim, explained that “Investors have grown a bit cautious now amid growing fears about Portugal. The interest rate decision by Bank of Korea scheduled later this week is also awaited.” Portugal received a temporary breather when the European Central Bank bought up Portugal’s bonds. Meanwhile, market pressure mounted for Lisbon to find an international bailout quickly.

South Korea Interested In Producing Stealth Jets

South Korea is investigating the possibility of adding stealth jet fighters into its arsenal. They will develop and manufacture as much of their own technology as they are able. The planes should roll off the production lines by 2015.

North Korea’s murderous artillery barrage of Yeonpyeong Island in November has encouraged officials in Seoul to approve developing technology for stealth aircraft.

The possession of stealth aircraft would enable South Korea to develop the military aviation technology of the western nations. The South will also be able to exert psychological pressure on North Korea because stealth technology with enable the South to launch surprise air attacks which North Korea cannot detect via radar.

South Korea’s GS Global Will Invest $5 Million in Steel Strips

South Korea’s GS Global Corp intends to invest USD 5 million in India’s Steel Strips Wheels. According to a top official at Steel Strips, This investment comes within a month of the Indian firm selling some of its stake to Japan’s Sumitomo Metal Industries.

Steel Strips makes wheel rims for auto makers. According to Managing Director Dheeraj Garg, it plans to use the funds to expand capacity at its Jamshedpur plant in Jharkhand. The deal will be signed on December 15. Dheeraj Garg said that “We will be expanding our project at Jamshedpur from 1 million units to 1.6 million.”

South Korea’s KIC Coordinates Sovereign Funds For Mutual Investments.

South Korea’s $37 billion sovereign wealth fund, The Korea Investment corp. intends to make three to four strategic investments in the coming year. They will invest with other state funds in order to diversify their portfolio.

Chief Investment Officer Scott E. Kalb said that “We are in discussions with our counterparts, sovereign wealth funds all over…We have already looked at a number of transactions together and we’re looking at some that are pending — our end goal is to wind up having a diversified strategic portfolio in a variety of sectors and countries.”

According to Kalb, KIC is investing more in public and non-traditional assets such as real estate and private equity in developing countries due to growth opportunities.

KIC has invested in some infrastructure and real estate investments in China. It has purchased properties in other Asian markets, African private equity, and is considering investments in Latin America, India, and more in China, he said. The company is investigating purchasing Japanese property due to rising prices.

Korean Industrialists Awarded for innovation and management quality

Hyundai Steel’s Woory Industrial Co. and KOMOS will receive the top award in the National Quality Management Award ceremony which will be held in Seoul this Tuesday.

Chief executives of Seoul Commtech Co. and Korea South East Power Corp. and will be awarded the esteemed Gold Tower Order of Industrial Service.

The National Quality Management Award is awarded to individuals and organizations who have made important contributions to promoting management quality. These awards are overseen by the Korean Standards Association and organized by the Ministry of Economic Knowledge which is the Korean Agency for Technology and Standards.

Woory Industrial and KOMOS manufacture automobile parts. The former specializes in sensors and parts related to temperature control equipment. KOMOS produces steering wheels and related equipment.

The data shows that the stock prices of the companies that have received the award between 2005 and 2009 have increased at a higher rate than the average for the benchmark KOSPI.

According to available data, award winners’ stocks rose 5.78 percent more than the KOSPI average during the half year following the award. The rate increased to 11.77 percent for the year after they received the award.

Korea South East Power Corp. chief executive Jang Do-soo and Mr. Oh Se-Young, chief executive of Seoul Commtech Co. will receive these rewards.

After Sealing Ssangyong Deal, M&M To Expand Business In The US

Indian auto manufacturer, Mahindra and Mahindra (M&M), intends to expand its automobile marketing in the US after completing the acquisition of a majority stake in the South Korean car company Ssangyong, according to a company official.

“We have made an agreement with Ssangyong Motor to purchase a majority share in the South Korean SUV-manufacturer to expand our business in international markets. We hope to enter the US market, after the (Ssangyong) deal is complete,” said a senior officer in the Finance and Strategic Development Department of M&M.

There are a few points which have yet to be resolved and the deal is expected to be sealed by early 2011.

Woori seeks to Form Consortium While Hana Pursuing M&A

The battle for Woori Finance Holdings is heating up, as the nation’s largest financial has expressed its intention to stand on its own feet, while Hana Financial Group is seeking to take over the state-run lender.

Woori Bank CEO Lee Chong-hwi said Monday that it plans to form a consortium of investors to buy a controlling stake in the financial group, which was put up for sale last week, the head of its bank unit said Monday.
The remarks came after the state-run Korea Deposit Insurance Corp. began to accept bids over the weekend for a 56.98 percent stake, worth about $6 billion.

Hana, the nation’s fourth-largest banking group, has openly expressed interest in taking over Woori, but Woori has pushed for finding a few big investors to jointly buy the stake in order to avoid falling under the control of a smaller rival.

“For the sake of independent privatization, we should form a consortium among domestic and foreign big investors,” Lee Chong-hwi, chief executive of Woori Bank, said in a monthly speech to bank employees.
“Putting the banking group under joint ownership by a small group of shareholders, rather than one dominant owner, is the most realistic solution for the privatization of Woori Finance, and it would also ensure a stable governance structure at the group,” the CEO said.

Woori has asked a few industrial groups, including steelmaker POSCO and information technology service giant KT, to buy some stakes in the group. However, so far not a single group showed any intention to buy stakes.

Recently a KT spokesman said the IT heavyweight has no plan to buy a Woori stake and about a month ago POSCO Chairman Chung Joon-yang told local reporters the world’s third largest steel company is not interested either.

Hana is moving to secure funds to buy the bigger rival by putting its real estate property up for sale. The boardroom of Hana approved a plan to sell the main office of Hana Daetoo Securities, a brokerage arm of Hana, last week.
The 23-floor building in Yeouido, a local center of financial services firms, is valued at around 300 billion won. Industry watchers said Hana decided to sell the building to secure enough cash in preparation for the acquisition of Woori.

Hana is also asking global financial firms to join the M&A deal. The company said so far a couple of investors have shown interest.
“A few overseas international financial companies said they are interested in joining the Woori bid,” Hana Spokesman Lee Jung-dae, said.
He said that there has been positive feedback in the process of inviting investors. “Thanks to the friendly investment support, we may not need to prepare many assets for the deal.”

Analysts said it is too early to predict the future of the deal, and said anything is possible at the moment.
“Nothing has been decided yet. If Woori attracts sufficient investors, it can survive on its own ability,” Choi Jung-wook, a senior analyst from Daishin Securities, said.

Others view Hana is in better position than Woori now.
“I think Hana has taken the initiative to lead the M&A deal. Hana is betting the group’s destiny on the deal, while Woori will have a difficult time to find financial investors,” Lee Hyuk-jae, an analyst from IBK Investment & Securities said.