South Korea has been in the news a lot recently. How do you view the country?
We view the current political developments as more likely to have a positive outcome than a negative outcome, and the likelihood is that the left-leaning Democratic Party’s president will get in. That will mean that both the president and the assembly are from the same parties which would facilitate legislation being passed. That party has said specifically that they would like to introduce laws that reform Korean corporate governance, including noticeably one that calls for the fair treatment of all shareholders. So, this process might expedite that. As long as there’s no violence or political turmoil, we see it as a net positive.
What are the barriers to change in South Korea?
Change in South Korea is being resisted by that tiny number of families that control companies, but it has been embraced by everyone else. It is being embraced by the 15 million local investors, the likes of the National Pension services, and international investors. The reason why this handful of families is resisting change is because they benefit from the status quo. They benefit from the extraordinary lax laws in South Korea that has allowed them to act in ways that benefit themselves but prejudice minority shareholders and have done so for so long.
Now, it’s very difficult to resist laws that seek to treat shareholders equitably, and they’ve had to come up with some creative ways of framing their argument. I think the most recent one I’ve seen is that fiduciary duty of directors might result in frivolous lawsuits. But, I believe that argument is hard to sustain when the record of the families that control careers companies has been so poor – it would be one thing if they had exercised model corporate governance despite weak laws, but clearly they had exploited those weak laws for over a decade to benefit themselves. Therefore, they can’t really say that these laws would result in frivolous lawsuits because there are lawsuits that result from these laws. They will, I’m sure in most cases, be fully justified.
How should investors view opportunities in China considering the many challenges the country is facing?
Investing in China has got its risks, and I think most investors are aware of what those risks are. They range from geopolitical concerns and potential tariffs to the property market having burst in China and weak consumer sentiment. But for us, investing has always been about price versus value and value has certainly been affected by those factors. But if we look at price, the price of these companies has come down in many cases so much that the valuations are extraordinarily attractive even in the context of those risks. Now if all the risks play out in the worst possible way, it won’t be great for an investment in China. But if you probability weight those risks, we continue to find Chinese stocks attractive because you’re being paid to take them.
