Just this month, Japanese stocks, as measured by the Nikkei 225, set a new 30-year high. The index broke above the 35,000 level for the first time since February of 1990, nearly 34 years ago.
At the same time, China’s CSI 300 Index is currently trading at five-year lows.
So, with China out of favor and Japan’s big move in the rear-view mirror, what’s the next play in Asia?
Although it often gets overlooked, there’s a compelling case to be made for South Korea.
South Korea is an economic, industrial and technology powerhouse as the world’s 13th largest economy. Its economy and stock markets are led by its giant industrial groups with the total sales of the five largest conglomerates have consistently made up more than half of South Korea’s gross domestic product in the past 15 years, sometimes exceeding 70%, according to the book Republic of Chaebol by the economist Park Sang-in.
The leading example is Samsung Group—a sprawling empire with an unbelievable number of businesses under its umbrella. Samsung has eighty different businesses, and these range from making semiconductors to televisions, washing machines, medicines, smartphones, heavy machinery, and much, much more.
In addition to Samsung, another large Korean industrial heavyweight is Hyundai (which rose after winning American contracts during the Vietnam War), as well as LG group, and Kia.
South Korea’s economy remains dominated by a handful of family-run conglomerates (known as chaebols) that hold outsize wealth and influence in the country. The Lee family of Samsung, the Koos of LG, the Cheys of SK Telecom, the Shins of Lotte and the Chungs of Hyundai are household names that have tightly held the reins of the country’s largest companies.
Let’s look at some options for you to invest in South Korea beginning with an industry very much in the news.
5 Korean Plays for 2024
U.S. Steel, created by J.P. Morgan and Charles Schwab back in 1901, and which became an iconic American brand, is in the process of being acquired by Japan’s Nippon Steel for $55 a share, or $14.9 billion. At its peak last century, it was the world’s largest steelmaker, employing more than 350,000 workers and producing more than 35 million tons a year. These days it’s ranked 27th, hiring 15,000 workers and producing 14 million tons. Another sign of moving our industrial base to Asia.
This is despite substantial efforts by Washington to support the steel industry with tariffs and quotas. American steelmakers have struggled to compete against low-price, subsidized metals made by foreign competitors including China, which now accounts for about 55% of global steel production.
South Korea’s steel leader is POSCO Holdings Inc. (PKX). This Korean stock has come off sharply from its high at 125 in early July and could benefit from any delays in the Nippon Steel-U.S. Steel deal.
On the financial front, KB Financial Group Inc. (KB) is a South Korean regional bank headquartered in Seoul, South Korea. It provides a wide variety of banking products and services, including loans, brokerage, and insurance services. Its stock offers investors both a valuation of just five times earnings and a 5% dividend yield.
Another regional bank is Shinhan Financial Group Co., Ltd. (SHG), headquartered in South Korea’s capital, Seoul. Few analysts cover its shares, and it is a broadly diversified financial service company with a valuation and dividend that is very similar to KB Financial, though its stock seems a bit less volatile.
Then there is Korea Electric Power Corporation (KEP) which is one of the largest power utilities in the world. Founded in 1898, it is trading at just 35% of book value, this Korean stock is in an uptrend, and in its last quarter, revenue was up 24% though the company is not posting a profit right now.
Finally, consider SK Telecom Co., Ltd. (SKM), one of the largest telecommunications companies in South Korea. Its affiliate SK Hynix is the world’s second-largest memory chipmaker. SK Telecom’s stock was flat for 2023 but it is the parent of Sapeon, an artificial intelligence (AI) chip startup backed by South Korea’s telecom-to-chip conglomerate SK Group, has launched its latest chip for data centers joining the global race to develop AI chips with bigger rivals like Nvidia (NVDA).
All the above are more than reasonable stock plays to tap Asian and global growth in 2024 but consider joining the Cabot Explorer to find out which South Korean stock the Explorer picks to outperform the pack.