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Immortal Flowers, Eternal
Income Streams |
Published:
July 14, 2008
Here at StreetAuthority, I know we're prone to couching every
conceivable topic in financial terms. But when I say South Korea
is blooming, I'm being perfectly literal.
Every year from July to October, Korea's national flower,
the mugunghwa, graces this lush, verdant country -- it's
really something to see: They're everywhere. Mugung
means "immortal" in Korean; hwa means "flower." This
tenacious bloom is said to symbolize the perseverance and
immortality of the Korean people.
Gardeners in the United States know this plant as the common
hibiscus -- you might have some in your yard. It is far more likely, however, that you have dozens of products
inside your house that were at least partly made in Korea. Your flat-screen TV, for example, or stainless-steel
refrigerator. Many of the iPod's 500 components, including
the screen, come from Korea, as does the memory in just
about every electronic device you use. These "Western"
products are largely dependent on the high-quality
manufacturers in this Eastern country, who are also serious
players in telecom, automobile production, chemicals and
shipbuilding.
It wasn't always like this in South Korea, a peninsula the
size of Indiana situated between the Yellow Sea and the Sea
of Japan. The country didn't gain its independence until
after World War II. And even after North was separated from
South at the 38th Parallel after the Korean War, the country
languished under military rule for three decades. It only
came under civilian control in 1992, and things started to
change -- quickly.
Four decades ago, South Korea's per-capita GDP was on par
with the poorest African and Asian countries. These highly
educated and hard-working people wanted more, so they
rolled up their sleeves. In 2004, South Korea's economy hit
a trillion dollars, and its per-capita GDP has risen to
equal Greece and Spain. It's an amazing story of resilience
and determination. The mugunghwa has been emblematic of
these Korean attributes since the country's culture emerged
in the 7th century.
How to Buy Stocks at a -40% Discount
One of the unique facets of the Korean culture is the
way Koreans stage meals, serving all courses at the same
time. This profusion of greens, spicy meats and the pungent
spiced cabbage called kim chi blankets the Korean
table and symbolizes harmony and plenty. It's another case
where an element of the country's fascinating traditions
translates into the financial realm as well.
Here are some of the tastiest plates on the investment
table:
The market's cheap: The main South
Korean stock index, the KOPSI, trades at 12.2
times earnings. That means you pay $12.20 for
every dollar of earnings. To buy that from the
S&P costs $20.51. In fact, it's been more
than 20 years since the S&P has traded below 14
times earnings. Buying a stock in Korea is
like finding a -40% price rollback on something
you've always wanted. These
stocks are a bargain.
The economy's strong: Inflation is
moderate, unemployment is low and the country
enjoys an export surplus -- something the United
States hasn't witnessed since Richard Nixon was
in office. Growth in 2007 was +5.0% versus +2.2%
stateside. The IMF predicts real U.S. GDP to rise an
anemic +0.5% in 2008 and +0.6% in 2009. The Korean
picture is far rosier: +4.2% growth is foreseen
for 2008 and +4.4% in 2009. That's far above
expectations for the world's advanced economies.
The problems have been resolved: The
1997-98 Asian financial crisis exposed
weaknesses in South Korea's business practices,
including high debt/equity ratios, vast foreign
borrowing and a less-than-disciplined financial
sector. These have been addressed, and the
country's financial system has bounced back
stronger than ever.
Its position is good: Korea is
located centrally within Northeast Asia, a
region with a population of 1.5 billion with a
combined GDP of $7.5 trillion, 22% of the
world's total. South Korea is a portal to
massive markets in China and Japan. Plus, Korea's
position is more than geographic: Its reputation
is good and its manufacturers' relationships are
strong.
The leader's sharp: President Lee
Myung Bak is the nation's first president who
has a corporate background. This matters because
Korean companies have massive amounts of cash. Persuading his former peers to dip into their collective
cash hoard -- which Goldman Sachs estimates is
equal to 31% of South Korea's GDP -- could have a
far greater and faster effect than even the most
prescient monetary policy. Lee ran on a platform
of boosting growth to +7% a year and upping
per-capita GDP from $24,800 to $40,000.
Korea is situated well
geographically and is home to some of the most respected
industrial enterprises in the world. Its rebuilt
financial system is strong and stable, its economy is
humming and its market is cheap. These trends are all
favorable, and they've been sustained for a long time. To wit: The KOPSI gained +211% since 2003.
And even South Korea's pesky northern neighbor is even behaving
agreeably these days.
What more could you ask for?
To put it bluntly: Cash.
No problemo, as they say in Seoul. I've found some
high-yielding gems in this little juggernaut of a country.
Let's take a look ...
11.5% Yields and Amazing Distributions
Finding these opportunities wasn't easy, if you'll
pardon me for saying so. That's because Korean companies
aren't ATMs, they're vaults. Most are run by executives who
weathered Asia's financial meltdown a decade ago, and they'd
rather have lots of cash in the till, as I mentioned above, than give it to shareholders. Another reason for low yields is Korea's tech focus: Tech
companies generally don't pay out much because of the huge
capital requirements of staying competitive in an industry
that changes by the nanosecond.
All that being said, double-digit
yield enthusiasts will be interested in an
Asia/Pacific fund I added to my
High-Yield International
portfolio earlier this year. This exchange-traded fund
provides easy access to Far Eastern markets and carries an
impressive 11.5% dividend yield. And for a strictly
Korea-focused fund, I found one that has thrown off $17.41
in the past year -- and the fund is currently trading below
$25! These funds are the sort of opportunities
High-Yield International scours the world for.
If you'd like to find out the names of these funds,
and discover other excellent income opportunities in markets
all over the globe, then I'd like to invite you to become a
subscriber of this premium newsletter.
Visit this
link to learn more.
-- Nick Lanyi
Editor
High Yield International
Income Security
of the Month
Our "Income Security of the Month" for August 2008 invests in a
fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of
25.5% per year over the past five years -- this fund is perhaps
most appealing for its total return potential. Specifically, the
fund has delivered total returns of +178.9% since 2003,
and it ranks in the top 10% of its category over the past decade.
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