Roubini Bullish on South Korea

NYU Economist Nouriel Roubini has been on television or quoted elsewhere in the press at least 14,000 times in the past year or two. Astonishingly, journalists almost never seem to ask him the most interesting question: “So, Dr. Doom, are there any markets in the world that you actually like?”

A plausible theory is that the question has been asked, but Roubini has dodged it or refused to answer. And that’s exactly what I’d do if I were Dr. Doom. As Joe Weisenthal explains so eloquently in this post on Clusterstock, there almost no downside in being consistently negative about everything.

Now the arc of an uber-bear who misses the turn will look different than the arc of an uber-bull. A crash will render an uber-bull instantly irrelevant and mocked. They could be finished in one day. An uber-bear on the other hand, can maintain credibility and a cult following long after their predictions fail to come true. For one thing, negative people are just generally more respected by intellectuals and critics than positive people. For another, and this is key, you can never really prove a bear wrong.

They can bark at the moon for years and years for all different reasons, and when the crash comes, people will call them oracles. That was certainly the case with Roubini, who only honed in on the housing crisis after banging away on trade deficits for the longest time. Plus, there can always be another crash. You can’t prove there won’t be, so you can’t prove that they’re actually wrong. Ever.

And the shtick apparently works well with the babes too.

Leaving all of that aside…Bloomberg’s great Asia-based columnist Willie Pesek has finally uncovered a market that Roubini seems to like. And the winner is…

South Korea! Who knew?

Actually it’s not all that hard to understand, if you think about it.

The reason Roubini says Korea may grow more than 1.5 percent next year is the economic-policy changes made over the last 10 years. The 1997-1998 Asian crisis seemed like a curse at the time. It devastated the nation of 49 million and forced the government to accept a humiliating International Monetary Fund bailout.

Today, that experience is proving to be a blessing in disguise. The government assessed the magnitude of its problems and admitted how bad things were. It allowed weak companies and commercial and merchant banks to fail. It acted quickly to rid balance sheets of bad assets. As a result, Korea was the first Asian economy to recover from the crisis and repay the IMF.

Comments

[Mad Hedge F...:]

Another good call by Nouriel. With North Korea testing low grade nukes and short range missiles (think WWII German V2’s), and a former prime minister jumping off a cliff to commit suicide, you wouldn’t think this is the best time to contemplate an investment in South Korea. You may recall that I recommended that the Hermit Kingdom be added to spell “BRICK” with a “K” last January (www.madhedgefundtrader...) .
Korea is in fact somewhere in between a true emerging market and a developed country, with lower risk and lower returns, than say a Taiwan or an India. Let’s see how that call faired. After hitting a low of 998 in March, it soared 45% to a seven month high. The recent troubles have pared it back by 10%. For long term investors, this is opening a rare window to scale into some exposure here. Short term traders should wait for a bigger pull back. They used to say you bought Asia only when there was blood in the streets. This isn’t really blood, but is close enough.

Jun 01 10:39 AM

[tc1:]

I wanted to buy EWY the other day when the missile test drove down its shareprice but before i could enact a buy the following morning, it was already up almost 5% out of the gate and i didn't want to chase it. So i'm ambivalently (and selfishly) waiting for the next missile test to bring EWY's price down a bit... ;-)

Seriously, if Roubini's bullish on S.Korea, i suppose i should be averaging in even at these recently puffed up prices for EWY, given the huge upside potential....

Jun 01 11:57 AM

[Larry House:]

I think much of Asia is a superior place to invest. China stands out as the best.

Jun 01 12:47 PM

[HaavBline:]

Taiwan is a better bet than South Korea.

Taiwan and South Korea are the closest competitors. They were at similar stage of development for the past 40 years. For the past ten years or more, Taiwan has lag behind South Korea. Whereas Taiwan was stucked in a self-identity crisis and political confrontation with a rising China, missing out at least 50% of China opportunities that should have been easily theirs to exploit, South Korea took full advantage of the political contraints of Taiwanese businessmen and out-perform Taiwan by a wide margin.

Things now have changed since last year, with Taiwan finally decided to change course and will be playing catch-up with full support from China. These could mean a lot of the trade that went to South Korea because Taiwan business was politically disadvantaged will now and in the future go to Taiwan instead.

Although this is certainly not a zero-sum game, the extra boost to Taiwan and lost opportunities for S. Korea can still be substantial.

Jun 02 10:08 PM

[RiskReturnO...:]

Agreed completely. South Korea was a great investment, but going forward Taiwan will be better.

Recent developments between China and Taiwan have the Korea firms very worried. For example, Samsung and LG have lost major market share in the LCD market to Taiwanese firms, as China has shifted business to Taiwan.

Local (Korean) media is so worried that they coined the term Chaiwan (China + Taiwan)!!!

Probably both EWT and EWY can go higher, but EWT will provide more alpha due to the increase business opportunity with China (a catch up effect after decades of geo-political issues).

Short term, wait for the pullback in China and Taiwan, make sure nothing happens around June 4th, and then ride the market up for a powerful year-end rally.



On Jun 02 10:08 PM HaavBline wrote:

> Taiwan is a better bet than South Korea.
>
> Taiwan and South Korea are the closest competitors. They were at
> similar stage of development for the past 40 years. For the past
> ten years or more, Taiwan has lag behind South Korea. Whereas Taiwan
> was stucked in a self-identity crisis and political confrontation
> with a rising China, missing out at least 50% of China opportunities
> that should have been easily theirs to exploit, South Korea took
> full advantage of the political contraints of Taiwanese businessmen
> and out-perform Taiwan by a wide margin.
>
> Things now have changed since last year, with Taiwan finally decided
> to change course and will be playing catch-up with full support from
> China. These could mean a lot of the trade that went to South Korea
> because Taiwan business was politically disadvantaged will now and
> in the future go to Taiwan instead.
>
> Although this is certainly not a zero-sum game, the extra boost to
> Taiwan and lost opportunities for S. Korea can still be substantial.

Jun 03 04:52 PM