Saturday, October 23, 2010

드디어 중앙일보에서 이 뉴스 나왔음. 오래전 우리 불록그에서 있었다.

Once again, The Seoul Gyopo Guide has reported news before one of the most important Korean newspapers and the International Herald Tribune.

This article entitled "Few ready for currency war" addressed the risks that a currency war would present to Korean companies.  It is true:  Korean companies, more than other countries, are vulnerable to volatility in foreign exhange levels. 

There are many issues here.

First, foreign exchange movements can be partially hedged.  What does this mean?  That means that Korean companies can (and should) use financial instruments such as derivatives so that the companies do not suffer deep losses during times of foreign exchange volatility.  In the past, Korean companies hoped for volatility because the products were not yet the best when compared to foreign (largely Japanese) competition.  THIS IS NO LONGER THE CASE.  In the US, the only brand more expensive than a Samsung TV is Sony.  And the price differential is not large.  In countries outside of the US, that is largely the case.  The Seoul Gyopo Guide was created, in part, to recommend these types of strategies.  One of the first posts addressed this issue:  The problem has been the misuse and/or misunderstanding of derivatives.  In the respect, the article is accurate:  Korean companies need to increase their knowledge of derivatives if they can help stabilize the companies' operations.  My suggestion:  hire a consultant when the cost cannot be managed inside the company. 

Second, foreign investors will more likely NOT violently buy and sell equities in Korean companies that hedge. The reason is that if foreign investors are aware that Korean companies are capable of managing foreign exchange risk, that would be a very important reason to remain invested in Korea's great corporations.  In the US, one example is Southwest Airlines.  The airline industry is very exposed to fluctuations with respect to the price of oil.  Southwest Airlines has been a pioneer in using hedging to reduce that exposure, and to focus investors' attention to Southwest Airlines' strategy and execution of its business.  Korean often complain that foreign investors buy and sell and buy and sell which causes instability.  Well, that exists in every other country as well.  In the US, it has been reported that the average holding period of a particular share of stock is 11 SECONDS. 

Third, JoongAngIlbo and the International Herald Tribune need to be faster in reporting these developments.  It is not only Korean companies that are affected.  Many private hospitals in Korea borrow money based on the JPY/KRW exchange rate in order to build their buildings.  Plastic surgeons borrow money based on the JPY/KRW exchange rate to lease their expensive equipment.  Wealthy individuals have been able to borrow money based on the JPY/KRW exchange rate when taking out a mortgage.  Tourism to Korea has, and will continue, to vary greatly based on the strength or weakness of the Korean Won.  Newspapers need to inform readers about these effects.

Korean companies can contact The Lost Seoul for derivative expertise, and Korean newspapers should be following the Seoul Gyopo Guide.  The Lost Seoul is strictly qualified to provide advice and opinions on these complex matters.  The initial consultation is free.  One of The Lost Seoul's greatest frustrations is the fact that too often, Korean society is filled with people/companies that "say" that they are experts, when in fact, they are not.  For that reason, the initial consultation on any of the business or educational services provided by The Lost Seoul are free of charge.  I am that confident.  (그 만금 자신이 있습니다. ) 

Good luck.


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