Korea’s Wan Warrior Weave

Korean President Park was inaugurated as she tapped a dovish think tank head for Finance Minister who may advocate fiscal and monetary stimulus as GDP growth sputters at a 1-2 percent pace on dented domestic and external demand. The stock market was at Asia’s rear on $2.5 billion in foreign investor outflows in January as bonds were jarred as well by official saber-rattling over possible “hot money” taxes to brake currency appreciation now particularly pronounced against the yen on  Japanese prime minister Abe’s ultra-easing thrust. The government also suggested it could limit state bank and company borrowing abroad as a major corporate issuer. The G-20 meeting declaration was mixed on the regional ramifications of Tokyo’s exchange rate policy, as Seoul reported a monthly export decline even though products do not directly compete for global share. Household debt remains high to stifle domestic consumption as the President pledged mortgage relief along with pension and child care support as an immediate budget priority. Heavyweight exchange listings like Hyundai Motor and steelmaker Posco predict double-digit sales declines as the average p/e ratio drops to 8.5, just as the chaebol have been mandated to raise dividends under the new administration’s “economic democracy” campaign. Payouts are roughly half the emerging market norm at 1.5 percent and giants like Samsung sit on large cash reserves. Activist investors have begun to challenge the return in an effort to elevate overall corporate governance, while Samsung executives reply they are saving for acquisitions like recent purchases of European semiconductor producers and for negative won shifts like the 20 percent rise against the yen since last year. The central bank continues to intervene to pre-empt a break through 1000 to the dollar as it points out the anti-inflation benefits ofcurrency strength with CPI under 3 percent. Analysts also cite possible safe haven cross-border channeling for the upward trend as tension with North Korea resumes following missile tests with reach now extending to the Western US. President Park, whose father was a staunch anti-communist general, had indicated potential overtures toward the young leader in Pyongyang during her run which may be indefinitely sidelined with the North’s continued militancy and reported willingness to help other rogue regimes including Syria’s Assad.

Japanese prime minister Abe has been mired in a separate confrontation with China over small disputed islands which contributed to a record trade deficit and last quarter recession. On a visit to Washington he held out the prospect of resolution to safeguard commercial and diplomatic ties as an early cleanout of the central bank board was orchestrated to proceed with expanded asset-purchase plans. Foreign bond buying proposed during the contest for LDP party return has been ruled out in the near term as private sector securities appetite turns to home with expected steeper yields and the upcoming end-March fiscal year traditional repatriation. However both retail and institutional interest is still keen for hard-currency emerging market instruments as Uridashi for the local market should again conquer $20 billion.