These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.
David Hurwitz says that Korea is a value investor’s dream — great companies are cheap, and the backdrop is a wealthy country that’s among the most stable in the world. This is unlikely to be particularly helpful as it comes to specific stock ideas for individual investors, none of us are likely to be investing enough to become activist shareholders in even very small Korean companies and there are only a handful of big Korean stocks that are easily traded outside of Korea, but it’s useful to think about in considering the hugely undervalued market in South Korea generally.
The whole Korean market, which is about the same size as Germany’s stock market, trades at just barely more than book value at 1.1X book.
The ROEs for the companies are low, but it’s because they are largely overcapitalized because they haven’t had opportunities to invest. That’s a good environment for activist investors.
There are even a few billion dollars worth of companies that are real “net nets” that are valued at less than their real cash assets.
Warren Buffett likes Korea — bought Posco and personally invested in a bunch of small companies just because they were so cheap. He also likes the ethos of Korea for shareholders, which differentiates them from Japan in some ways.
The headline is “Korea is not Japan” — in Japan, activism has not worked at all and Japanese shareholders just don’t like it and will vote to kick foreign owners out even if it’s against their economic self-interest.
Korea is different, they get attention from companies and minority shareholder rights are well protected — it’s actually better for activists than the US in many ways. The companies are cheap, as in Japan, and are overcapitalized, but Japanese management rarely owns shares and Korean companies usually have substantial management shareholders.
ROE is higher in Korea than in Japan, and PE is lower.
The biggest difficulty is that few companies report in English outside the largest companies, and trading in Korea is a little bit of a nuisance for the hedge fund guys, with volume light for the smaller companies.
There are also a lot of opaque holding company structures and they’re in ...