South Korea: Pine Investment Advisory

Nearly two years ago, I had the opportunity to be a companion speaker with Craig Israelsen at an investment conference in Hong Kong.  At the conference, I had the opportunity to meet Michael Hoosik Min, the Chief Investment Officer and the Founder of Pine Investment Advisory.  Michael immediately impressed with his global market knowledge, and he is a successful boutique money manager specializing in Korean equities.  We have continued our correspondence since our meeting in Hong Kong, and it was great to meet with him in his beautiful Seoul offices and to continue the discussion over lunch.

Michael Hoosik Min, CIO, Pine Investment Advisory

I could fill pages with the valuable insights that Min shared about the Korean economy and markets.  There are three key concepts that he emphasized that are worth repeating:

1 – He does not think about Korean stocks as a whole, but instead thinks about them by sectors and categories.  He is less enthusiastic about “hard” sectors, and more enthusiastic about “soft” sectors (consumer and service sectors).  He shared several interesting examples about Cosmetic stocks, given the rise of “Korean cool” among Chinese and Asian consumers.  Min highlighted a major theme in how we think at Lunt Capital - there is value in recognizing and attempting to capture sector differences, whether in the U.S., in global equities, or in South Korea.

2 – A new Korean benchmark has the potential to change the way that investors think about Korean financial markets.  The benchmark index for Korean equities has historically been the KOSPI index, which has been dominated by the largest companies (think Samsung and Hyundai).  Stagnate Korean markets have raised concerns among policy makers that the KOSPI is not representative of the growing and diversifying Korean economy.  In the coming weeks, Korea’s Financial Services Commission will launch the KTOP 30 Index, patterned after the Dow Jones Industrial Average.  This will allow for a more diversified (and subjective) index to represent the Korean economy.  The government will not tax derivatives on the new index, which will likely spur an immediate adoption of this new index as the primary benchmark.  This move will coincide with additional, explicit government efforts to spur stocks.  These efforts include moving the daily limit on stock prices to 30% from the current cap at 15% moves.  (Did you know that such a cap exists?)

Michael Hoosik Min & John Lunt

3 – Keep an eye of the emerging relationship between South Korea and China.  Given South Korea’s sensitivity to exports and currency movements, don’t be surprised if South Korean financial markets are an early warning sign to risk and opportunity in China.

My discussion with Min was wide ranging, and it reminded me that there are such great minds in this business around the world!  He reminded me that Korean investors still remember the devastating shock that came to investment markets during the Asian Financial Crisis of 1997.  Memories are long, and many would-be investors have been content to keep money in the bank instead of in the markets.  As with Japan, negative investor experience takes years to overcome.  Min thinks that this “market-skeptical” mindset is beginning to change.

Special thanks to Brennan Staheli, Evan Fiala, and the Lunt Capital team for their contributions to this report.