Tale of Three Pictures: Nikkei, KOSPI, and JPY/KRW


This blog has taken some grief for its analysis regarding the Korean Won, the Japanese Yen, and the fact that Korean chaebol have done well in no small part due to the incredible Yen strength.

Let’s take a look, shall we?

The KOSPI hasn’t moved over this last two years.

Chart forKOSPI Composite Index (^KS11)

Now, this is the Nikkei (Japanese stock market), which is now at a 5-year high.

Chart forNIKKEI 225 (^N225)

And now, the punchline:  this is the KRW/JPY exchange rate.  The lower the number, the stronger the Korean Won, compared to the Japanese Yen.


The short story:  both economies are export-driven.  We can all say that LG/Samsung have left Sony in the dust, and that is true in LCD TVs.  However, this blog has reasoned that LG, Samsung and a few others have used the favorable exchange rate to make great profits, and use those funds for research and product development.  For Hyundai Heavy, POSCO, and other Korean companies where technological advancement is not the key input, the story will be more difficult.  The market agrees.  Don’t be surprised if we start seeing headlines over the next year that suggest that Toyota/Honda are growing while Hyundai/Kia are not.  We will see on that.

Dear Everyone, Double Toldya.  Signed, Bank of Korea.

Let me be clear: the Bank of Korea deserves an A-PLUS.  Look throughout this blog.  This should be no secret to the many readers of this blog.  The Bank of Korea has managed a very delicate situation, has used its rights to withhold premature judgement, and has acted to the benefit of the Korean economy and its citizens.  It has been, at certain times, lucky.  The Japanese Yen has been too strong for too long, for reasons that could not sustain themselves forever.

Now, the ball is dramatically back into the Bank of Korea’s court.  Instead of being passive, and waiting, it may actually need to lower rates.  It is the one instance when the domestic real estate situation (which must be called a small disaster) calls for it, and to weaken the Korean Won for the benefit of Korean chaebol.  Now, that doesn’t mean that the previous criticisms of the chaebol as written here are any different.  While Samsung Electronics, LG, and Hyundai/Kia have used the weak Won to enhance themselves tremendously on the global stage, other Korean chaebol have not.  So while this may seem like it is rewarded those unproductive chaebol, in a land of corporate governance and societal issues, the fact is that the Bank of Korea may need to move.  And soon.