In a week when the most developed market in the world has not particularly covered itself in glory, after years in the waiting room it was announced this week that Korea would be admitted into the FTSE club of developed markets.
According to the FT (South Korea wins developed-country status, 18 Sept 2008), this could result in a net inflow of $25bn into the Korean stock market as funds which track the global developed market index rebalance their portfolios (while those that track the emerging market index sell out). The Korea Exchange has a slightly more conservative figure – $16bn (Source: Forbes.com).
In the same week, it was announced that HSBC no longer wants to buy KEB – at least not at a price agreed a year ago, in more benign times. As the FT says, (HSBC Walks, 19 Sept 2008)
Events of the past few weeks made the deal, struck a year ago, increasingly anomalous. For the same money1, HSBC could now buy Washington Mutual twice over, snap up one-third of Morgan Stanley – or virtually take out all of KEB (minus any control premium).
One can’t help but feel that if the deal had been approved earlier, KEB would now be owned by a bank (a) which the KEB union actually wanted to be owned by and (b) which would be likely to retain all the staff – unlikely in a takeover by any domestic Korean bank.
But, while one UK company is tired of the battle, another decides the price is right: Tesco continues its bid for world domination by taking over more of E.Land – this time its DIY stores. According to the Joongang Ilbo,
Korea’s antitrust agency has given Homeplus, the local unit of the United Kingdom’s biggest discount store chain Tesco Plc., conditional approval for its takeover of Homever, the discount chain of Korea’s E.Land Group.
Regardless of Developed Country status, Korea’s flagship company, Samsung, is included in the Dow Jones Global Titans 50 Index. As an annual fun exercise, Barron’s magazine polls a list of fund managers for their attitudes to the top 100 companies by market capitalisation – as determined by Dow Jones. In the 2008 list, published on 8 September, Samsung weighs in at number 42. You can think of this as being in the top half, or you can think of it as being about average. Whatever, it signifies that corporate governance may not be seen as the big issue that it used to be. And Samsung was in the news for other reasons this week – a proposed hostile takeover for US memory maker SanDisk, believed to be Korea’s first hostile international bid.
Meanwhile, earlier this month, the World Economic Forum launched its Financial Development Index, “a comprehensive analysis of financial systems and capital markets in 52 countries that explores key drivers of financial system development and economic growth in developing and developed countries.” In the inaugural listing,
Korea came in at 19th in the overall FDI ranking, demonstrating consistent performance across all aspects of the Index. The country receives strong marks for the strength of its human capital, the quality of its technology infrastructure and a low legal and regulatory burden. The performance of its banking system appears to be a development advantage both in terms of its size and efficiency. Non-bank financial institutions are similarly robust, with strength across IPO and securitization activities as well as insurance. Despite the strength of these financial intermediaries, Korea, Rep. does not appear to have fully distanced itself from the financial contagion of the 1990s, earning relatively low marks for risk of currency crisis (35th) and systemic banking crises (40th). However, the degree of centralization in its economic policymaking (7th) is seen as a strength.
And, continuing the theme of Korea as a financial hub for North East Asia, the FT reports the Korea Exchange is actively seeking listings of foreign companies (KRX tries to lure foreign companies, FT, 21 Sept 2008)
Attracting more foreign companies is essential for achieving KRX’s ambition to join the top 10 ranks by 2015. KRX is the world’s 17th-largest bourse with a market capitalisation of about $671bn and approximately 1,800 listed companies.
- $6.3bn for 51 per cent of KEB