Good Investing Talks - Is Korea the new Japan, Chan H. Lee & Albert Yong (Petra Capital)?

Episode Date: April 9, 2024

Could Korean stocks offer the same chance for high returns as Japanese stocks had? I discussed that with Chan H. Lee & Albert Yong (Petra Capital)

I think that the bottom line is that the U.S.-China geopolitical tension will create more opportunities overall for Korean companies. But Korea, there are multiple new players that have become much larger. So in that process, the founders became very rich, billionaires, and so forth. I think that is good for the society and also good for the investors like us. You can always find newer companies and buy it earlier still. Right now it's a good time to invest in Korea because last year,

Last year, Korean economy slowed down, but it's turning around and we expect the Korean economy has grown the faster than before. And also the valuation is cheap, but there is a strong possibility of multiple extensions because of corporate governance improvement and also a strong possibility, probably not this year, but of upgrading to the developed market in MSCI index. Dear viewers of good investing talks, it's great to have you back and it's great to have Albert Yong and Chan Lee of Petra Capital back. Albert and Chan, maybe you introduce yourself for a second because people might not know you and they can get to know you with the other

interview that's linked above here. So if you're curious to learn more about investing Korea watches into you, but now the floor is yours, Albert and Chan. Thank you, Tillman, for having us again. Hi, my name is Chen Lee. I'm the managing partner of Petra Capital Management. Petra is a value-oriented investment manager based in Seoul Korea, and we manage assets on BF of selected group of university endowments, sovereign wealth funds, charitable organizations, and family offices. The firm was co-founded by myself in Arbor in 2009, but our flagship goes away back to 1995 when we were both graduate students at UCLA. Thanks, Tillman. I'm Albert Young.

At Petra, we are committed to creating long-term value for our clients by buying great businesses at undervalued prices. But from time to time, we engage with the management to unlock shareholder value. So the most important question for YouTube, as you have been a while in the game, who is telling the better jokes? Is it Jan or Albert? I think it's me, but Arbor probably thinks otherwise. We have to find out in the due diligence process. But now, let's get serious. Let's start with an easy question.

Is Korea the winner of the China-U.S. conflict? Yes, unless the tension between the U.S. China escalates into a larger military fight, many Korean industries and companies benefit from the current tension. The purpose of the U.S. policy towards China is to exclude China from the global value chains in the key industries such as semiconductor, renewables, and telecoms, etc. The Thru-chips Act, the U.S. is trying to restrict China's access to key technologies in semiconductor because China is some years behind the top technologies. And also through IRA, the U.S., the government is trying to ban Chinese EVs and EV batteries in the U.S. market because in that area, China is leading one of the leaders in the world.

And also, U.S. government is trying to curb investments in China to limit the advancement of the key technologies there. Yeah, so we think that the bottom line is that the U.S.-China geopolit contention. will create a more opportunities overall for Korean companies to gain market share in the global market. As I mentioned, for example, EB battery sector is clearly one major industry that will benefit from this growing economic spat between US and China.

So even without friction, the Korean companies are doing fine, but with this friction, basically Chinese products are banned in US, which creates a protective market for Korean companies. It's mostly starting in U.S., but to a certain extent, I think their policy is also influencing European countries. So I'll be very surprised if you see any Chinese eB cars being sold in U.S. And also in Europe, to a certain extent,

there are some Chinese cars that are being sold, but longer term, we probably replaced by European cars, but battery is made from Korea. Basically, now it's almost inevitable that there are going to be two economic blocks. One is the Western block led by U.S. and then the Western world. And the other block is China, which is huge. But basically, before I would say there was more free flowing of activities between two blocks, but because of the tension between U.S. and China, they're likely to be

two major blocks and while the interchanges are going to be still be there but it's not going to be as free flowing as before so so for Korean companies basically they'll belong to the part of the Western block and then I think it's so if you look at the export numbers in the past it was more to China but starting a couple years ago now Korean companies are exporting more to US and also forced to do more business in the US because of the IRA and so forth, that Korean companies are actually moving their factories to US. Let's switch from geopolitics, which is also important to think about investing more in the depth of investing. How is investing atmosphere in Korea changed in the last two years?

So recently, the Korean government has witnessed what the Japanese government has done to improve the corporate governance in Japan. That's probably one of the reasons why the Japanese market performed strongly last year and also the early this year. The Korean government is also trying to take many measures to improve the corporate governance and not just government, but many investors, both local and foreign, are actively trying to make the management and many companies to improve a shareholder value and return more cash to shareholders. That's why I expect the Korean market to perform well this year and going forward. Is there also more pressure from activists in Korea or how has activism changed?

Yeah, I would say that more recently there are more local and foreign activists are agitating companies. And similar to Japan, in the past, the world activism was not socially accepted. because what we've seen in Japan and how a lot of investors in Korea, even local and retail investors, came to conclusion that Korea discount is not good for the country, not certainly enough for their wealth, and people are beginning to actually demand some changes. That's mostly on the management to change their shareholder policy, paying more dividends and then treating the minority shareholders as if they're the full owners of the company rather than just shareholders without any vote.

So I think that is going to have a positive impact, and we've seen that in Taiwan and more recently in Japan. And so the trend is there, and I think that Korea will go through the same exercise. And so in that process, Korea discount is likely to get reduced in the longer term. So when I did the research for the interview, you were called friendly activists by another investor. So how do you do activism in Korea? So we at Petra, we are basically a value investor.

But from time to time, we try to influence or persuade or convince the management to unlock the shareholder value, to improve the shareholder value, and return excess cash to shareholders. So the key to us is to find the management who are willing to change. That's our style of activism, but we would say we are more an engagement player rather than a hostile activist. For really hardcore activists, our strategy is not even considered to be activists. We're more shielder engagement in a sense that if we think that the company has opportunity to increase its value by paying out more dividends or buying back.

shares in canceling them, especially if they're sitting on a large amount of cash that are being unused. That's the extent to which we'll get engaged. We don't intend to ever change the CEO or try to break up the company because that's not what we do as investor. We are going to get only engaged whenever we see there is a possibility of improving the shareholder value when and their capital allocation policies is not being fully utilized. How is your competition in Korea? So what makes Patriot Capital stand out compared to other films in the Korean market? So in Korea, we think that the percentage of value investors is small.

And even then, most of them are not true value investors to us. Most of them are just investors who are buying low multiple stocks. And many of the firms are part of the large conglomerate or the big financial group and not truly independent. So that's how we see the market environment in Korea. And also that Petra, of course, we are located in Seoul and we've been investing in Korean stocks for many years. But at the same time, we are also global. That's the key these days because most industries in Korea and over the world are truly global. So we have to be global at the same time.

As you know, we met you a couple of times in Omaha. We are a really true value investor in the sense of the Benjamin Graham and Chalienbonger, meaning that we do all of our investing with a bottom-up approach. and we do spend a lot of time on research performing our in-depth research as well as fundamental analysis and then trying to find a price that is cheaper than much cheaper than much discounted to the interest value that we have calculated from the target.

So to do this correctly, you need to have a really strong research function and then we'll be willing to spend a lot of time and also want to be very patient. But we see that a lot of competitors or investors here in Korea are not either not as patient or they rely on the research done by some other people. And they don't go into very deep analysis of the companies.

So I think that's where we're different because we've lived in Korea for many years. We spent all of our career looking at Korean companies. So we do think that we have some insight and then the deeper understanding of creating businesses and that we can analyze companies, appraise companies more correctly than other competitors. So to follow up a bit, you also seem to have a very patient capital base, which is your advantage. Yeah, that is true. But that's because our strategy is to buy the stocks for the long term to create values for the long term, that attracts, again, long-term-minded investors. That's why we have long-term investors, mostly, as our capital base.

Yeah, so our investors are slightly different from the typical Korean short-term investors in a sense that they're willing to withstand some underperformance in quarterly basis or even yearly basis, because we really look at our investment horizon to be three to five years. So we view investing to be more like a marathon, not a sprint, meaning that we're not trying to win every one kilometer yardstick. We want to win the marathon, but we pace ourselves and then get to be in the first place at the end of the marathon rather than try to beat each one kilometer interval. So I think that's a key concept to our investment approach.

So that means, you know, we're willing to invest in companies that are maybe not as popular or maybe misunderstood by the market at this point. But if we can wait six months, two years, and then, you know, have the right patience, then I think the fundamental value of the company will actually, play out at the end. What are these companies? So can you maybe give one or two examples companies you're invested in?

Maybe each of you can give an example. So what do you pick, Albert? Yeah, one of the examples is a big company, the Hyundai Motor. But we bought the preferred stock of Hyundai Motor. The Hyundai Motor is a global brand. And recently, it ranked the third in terms of volume. But even seven or ten years ago, it ranked seven to eight

and ninth in the global market. And especially in the EV industry, it's a new market. It's fifth and outside of China, it's even higher. And in terms of technology in EV cars, and probably thanks to the huge value chains located in Korea in terms of the EV batteries. And if you look at the technology, the range of the EV cars is probably the longest in the world, the one of the recent Hyundai cars. And if you look at the price between the common stock and the preferred stock, the gap, theoretically, in theory, the gap shouldn't exist, but the gap has been around, has been about 50%. And at the price of the preferred stock, it trades only at two or three times its earnings.

And the dividend is even high. It's 7%. And it also owns one third roughly 33% of Kia Motor, which is also the main automobile company in Korea. And so we think it's one of the cheapest stocks in Korea. but you can say that most automobile companies in the world trade at a low multiple, but yes, that's true, but that probably because the uncertainties surrounding the transition to EVs, but we think Hyundai is likely to survive once the transition is complete. So given that fact and the current profitability and valuation, we think it's one of the cheapest stocks.

Recently, this year, especially the pre-fresh stock, the went up a lot, and the gap now is still 40% instead of 50%, but still we think it's one of the most undervalue stocks in Korea. It's one of the major holdings for us. You have no fear that it gets crushed by Chinese competitors like BYD or others? Of course, I cannot say there is zero risk, but we think that, of course, BYD is a strong competitor. But that doesn't mean that the B-Y-D will crush all the other competitors. And Korea, also, if you look at the EVs and EV batteries, one of the leaders alongside the China. So we never think that the Hyundai will be crushed by B-Y-D. No, that's also the related to topic that we discussed earlier, the U.S. tension,

U.S. Chinese tension, meaning virtually no Chinese cars are sold in Korea, no Chinese cars are sold in U.S., which is the largest auto market. And Germans, you know, obviously they used to make competitive cars, not the EV cars, but they're likely to use Korean batteries. So I think it does, the tension creates, you know, already Hyundai is quite competitive, but it creates protected market. And I think the Hyundai will benefit from that. And already in the U.S., they're number two after Tesla in terms of the EV cars sold. So I think the Hyundai, it didn't read this extra protection, but, you know, sometimes you get lucky. And in this case, I think the Hyundai will probably survive as one of the legacy players that makes a successful transition into EB cards.

Chen, do you also have a, you want to share as an example for your investing strategy? Yeah. Yeah. So, you know, Hyundai is a brand that everyone recognizes. So I decided to pick this one company called Young One. It spells it as Y-O-U-N-G and one, but it has nothing to do with the age or being young. But this is a fashion company. It's a global manufacturer of OEM sportswear and casual outdoor apparel for major brands.

May I ask which, you wear a food tea, but... I read daily. Is there... It's a European brand. Okay. Okay, because the young one makes it, makes the clothes for the North Face, Lululemon, Patagonia, and all kinds of major brands. So nobody knows it because they're the OEM manufacturer,

but they're known in the industry because they designed together with these brands. So not only they make clothes for Lul Llemon or yoga clothes for Lul Lemon, but they design together. So their margins higher. And also interestingly, that they also happen to be a 51% owner of a company called Scott, which is the high-end cycle brand based in Switzerland.

And, you know, they make really expensive bikes, including e-bikes. They're very popular amongst the cyclists. And together, they make well over $500 million net income, but they're only trading at $2 billion valuation, which means they're only four times this earning. And another good thing about this company is they're sitting on about $1 billion in cash because they're so successful at what they're doing. So if you take out the cash, it's even cheaper.

So we think that this is a company that is not that well understood because the name is strange, first of all. Nobody follows this small company, but I think the sooner or later people begin to recognize this company, and then once people recognize volume of the company, and then stock price will likely to move. So this company called Young, you mentioned like Korea is not the largest market so as an example how much of the revenue

of the companies you mentioned is export or generally how high is the degree of export in your portfolio yes so for example young one i think is 90% outside of korea patagonia lulu lemon they're popular brands in europe u.s and other parts of asia and in yonuan cases more more than 90%. Hyundai is also more like 70%. So we're not really focusing on export only, but a lot of successful

Korean companies that are growing. They're likely to be a more global player or at least a regional player because that's where the growth is coming. Because domestically Korea is, you know, size of all 50 million people, but popularity is not, it's not growing

and it's hard to expect growth within the domestic market. So, revenues outside of Korea probably should be the right measure instead of export because, for example, Yangon has factories mostly in Bangladesh, so that's not the export from Korea. So overall, when we look at our portfolio companies, about roughly 60% revenues come from outside of Korea. That's more than the average. And we think that many Korean companies are expanding outside of Korea, even though the

economy is not growing fast. So basically the buying, the investing in Korean market is buying, expanding global Korean companies rather than betting on the Korean market. So what Korea is trying to become is more like a, I don't know if it's right word to say, but like Germany, Germany of Europe. You're based in Germany, but you sell all over Europe, you dominate the European market. Here, at least for the time being, because Korean products are very popular, conservative very high quality, and you add in the popularity of Korean pop culture, you know, the K-pop, the music, and then movies, you'll be surprised when you meet any teenagers in Asia, all of them want to buy Korean products, whether it's Korean car, Korean phone,

or even like the food and beverages. So we see that this will be quite interesting phenomena that will last for a while and the Korean companies are benefiting and our portfolio companies are inflective of their success outside in Korea. You've been quite some time in the market and

for me the question comes up do we already know all the stocks in Korea or how is your idea generation process going? Of course we know not probably all the most of the stocks in Korea. We've been investing

in Korea for more than 20 years. But again, we look at, we use basically our screening tool to screen out to find the undervalue stocks. But we look at various factors. We look at the industry, we look at the management, we look at each company's competitors, and also the clients and suppliers. And also we meet a lot of industry people,

and we also talk to the people in other management companies and security firms. So it's just not just one tool. We source our targets from various ways. Yeah, because we're technically, Korea is technically emerging market. That means the market is very volatile. So even when companies fundamental is fantastic, if something happens in North Korea, something happens in the U.S. interest rate goes up, then Korean companies are negatively affected. So we always look for, we have a list of very competitive Korean

companies, but we are looking for time to buy them cheap. So whenever the market tanks, because of the macro or other reasons that as I described, then we invest in those companies. So, you know, we're not betting on the market, as an active managers. We're picking 20 to 30 names. And so for us, we're trying to find the best value in paying the cheapest possible for the highest quality businesses. But you also have this different themes. You look for opportunities especially. So just this growth themes like K-pop, the specialized engineering, and you name the other two in your approach. Of course, yeah, the K-Pap related.

that's the mostly consumer brands that benefit from the popularity of the Korean culture. But another one is that we briefly talked about the manufacturing, and Korea is strong in high-tech manufacturing, especially in semiconductor, and also the EVVs and EV batteries. And also not just manufacturing itself, Korea is strong, has strong consumer brands and technology as well. For example, Samsung in smartphones and the home, the old. appliances is dominated by Korean companies and even automobile as I briefly talked about Hyundai. It's one of the global brands. And also in Korea, it's not that well known outside of the Korea, but Korea is very dynamic and entrepreneurial. And the size of the VC investment

compared to GDP is one of the highest in the world. So we have many new ideas emerging in Korea. Not many people know many new business models start in Korea. The examples are the music streaming or user created content and messaging all started in Korea, although they fail to dominate the market outside of Korea. So we see a lot of new business models emerging so we look at new companies. So there are many areas we look at many privacy areas. Yeah, also because Korea, it's the most interesting or most attractive, the attractiveness about Korean market is evaluation. So we look at companies that are misunderstood. So like, you know, the typical, some of the parts, when you add three parts,

four parts together, but it's only value like one, then like that Portia headway is an example. So we look at a lot of the complex structures that the Korean companies, And some people will say, I want to stay away because it's hard to analyze. But for us, when there's a difficulty, then there's opportunity. So we think that we're good at dissecting these complex structures and figuring out where the true value is. So we also look at these complex structures and trying to figure out where the real value is. So we look at some of the mispriced opportunities. And also the engagement is somewhat related to this strategy,

meaning that as I described in the Young one's case, if the company is doing fine, but they did so well that they built cash, but they haven't done anything with cash, you know, they didn't acquire a company or they didn't do anything, then the right thing for them to do is return cash or buy back shares and cancel.

And that's the new thing that I think the credit companies are likely to engage in. and that's where our sort of the engagement strategy. So you write them a nice letter or visit them at a capital market conference and talk to them. Yes, very polite letter and then, you know, visit them with the, but also think about Korea is a small country. So, you know, basically within one hour, most of the companies are, you know, based in Seoul. But if you stretch out to Busan or Jeju, which is more sudden, we can still. go within three hours. So for us we do have an advantage of being able to meet with the management

to see what they think about other shareholders and if they are honest or you know what they think about the future. Those are sort of sometimes quite important in the engagement type of situations as well as I think the quality qualitative aspect of management is also very important. So we can't really really measure companies just based on the matrix. How entrepreneur is the Korean ecosystem? So are there new, a lot of new companies coming to the public markets? I think there was some talking about VC in Korea, which might be quite interesting. What is your take on this?

So it's true that the IPO market is very vibrant in Korea. And one good thing is that many Korean companies go at an early stage compared to the U.S. The U.S., the companies tend to go public at a very later stage, so that's not good for the public market investors. But in Korea, most companies go public early, so we can buy the good business at early stage. So if you look at, for example, the top 20 names,

top two largest companies in Korea, now versus 20 years ago, half of them have switched, meaning that they're newer companies, whether they're in the newer technology or maybe this old company that actually move into the battery business like LG Chem. There are a lot of changes. And Koreans are, I think, very good at adapting to new environment.

So that's a good indication. If you look at a lot of European countries, once again, I mean, I'm a bit biased here, but you look at the names of the companies. You only recognize all names. You don't really see too many new names. But where in the U.S., you see so many. any new names, if you look at the, you know, many magnificent seven companies, that they were not,

you know, half of them weren't even around 20 years ago. So similarly, maybe not that extent, like U.S. but Korea, there are multiple new players that have become much larger. So in the process, the founders became, you know, very rich, billionaires and so forth. And they think that that is good for the society and also good for the investors like us, because we can always find newer companies and by the earlier stage. And another good proxy to look at how entrepreneurial the Korea, the economy is that they look at the top 10 or 20 richest per people in Korea.

And more than half of them are entrepreneurs, but that's not the case in most countries, probably except the US. Yeah, so these companies are founders, managed company like, you know, NVIDIA and the meta and similar and good thing about them is they're also pretty they're different from the conglomit mentality you know they're trying to build empire buying unnecessary businesses or unrelated businesses and then you know try to

maybe screw is too strong work with screw out their shoulders but I don't think that way they're more they're compounders so they're interesting interest is very strongly aligned with the minority shoulders. So we like those companies. They're a founder-managed companies. They have desired to become bigger. Hey, Timon here. It's great that you've made it that far into the video.

And I think it shows a certain passion for investing you're having. If you want to dive deeper and go further down the rapid hole, you're invited to apply to my community Good Investing Plus. It's a place that's very helpful to people who are ambitious about investing. It's helpful to investment talent as well as Experian fund managers. So if you're interested, please click on the link below. And now, without further ado, enjoy the conversation. How is your research process going if you discover an interesting idea?

Maybe let's take the K-pop example. So do you go to concerts and see what's coming up there or how do you access? How do you access interesting companies and research them in different fields or the K-pop field? Yeah, we do get a lot of help. Like, you know, I mean, we're the founders, but we do have other analysts, younger analysts, who are more well-tuned into the K-pop. But we, you know, me with industry expert, for example, the K-pop, we meet with other musical label executives.

you know, we go to the, you know, concerts, as you mentioned, you know, and then we also go to the industry gatherings where they exchange ideas and also we meet up with the artist, the former employees, the competitors, and then people in the related businesses, like content businesses, maybe not necessarily K-pop, but even knowing about how the movies and drama, because the music is a big part of their product. So we go through the basically 360-degree research. I think that helps us. I know the K-pop has been more interesting,

but even semiconductor. We actually visit factories. We meet with the industry experts, the scientists, the vendors, the people that got fired from the company, people that are professors. So we do try to meet everybody that are relevant so that we can have a better understanding of the industries and companies. Do you get something, Albert, on the research process? Oh, yeah, as Chen mentioned, we use various activities to try to understand the business.

For example, when we analyze semiconductor business, for example, when we buy memory manufacturers like the Samsung, and at the SK-Henics, we just not just try to understand the memory itself, but we, the look at, also we also invest in many smaller companies in the value chain. So we know a lot of them. So we look at industry as a whole. And we also, we not just meet the IR people from Samsung, we also meet a lot of engineers. I personally know a lot of engineers. I personally know a lot of engineers in Samsung because I also studied electrical engineering at college. And also most of the smaller value chain companies, even we have known them when even before they went public.

So we just know the industry thoroughly. So that's our approach. And just like to win the war, you need not just army, but you need the Navy and Air Force. So you need a lot of the angles to. Yes. because Korea is a big exporter. So, you know, we don't necessarily limit ourselves just looking at the Korean materials or Korean newspapers.

We try to read what other people say about Korean products, you know, try to read the Chinese newspaper, of course, the Financial Times and all the English publications. And also even for concert, for example, we have, like if one of our analysts traveling to Thailand, we ask him to go to concert, Blackpain concert in Thailand. We asked the analysts to go to supermarket, try to see if they're really buying Korean snacks. I know a recent trip, I think Arbor to China, I think he went to try to buy some Korean ramen, and he saw a bunch of them there.

So, you know, our research is basically a part of our daily life. I mean, it's a, yeah, we, you know, we do our work at office too, but, you know, basically we try to study the business, study the brands, study who's making money, basically. So I think the advantage that we have is that a lot of our investment team members are bilingual and we tend to travel a lot. So, you know, we try to see the views from other outsiders of Korea. But Albert was also allowed to eat some Chinese food. The only is allowed to try Korean food in China.

Yeah, but as Chen mentioned that even when I travel personally, I always try to find something. So I always visit even small mom and pop stores and big supermarkets and also look at the brands of the cars and just evidence. It's part of the research. It's just part of our life. How do you construct your portfolio in Korea? So, what mental models do you use? You have this mentioned 20 to 30 stocks, but how do you select them?

Is there an idea to have defensive part, more offensive part, or is it just driven on your valuation? Yeah, of course, the primary criteria is to buy undervalue stocks, stocks with the larger, the larger margin of safety. So we try to buy undervalue stocks. That's basically how we construct our portfolio. But we also look at the industry waiting because, of course, we never try to defollow the weighting of the market. But we try to make sure that our portfolio is somewhat diversified. because when we buy just simply by undervalued stocks, sometimes we buy only stocks in one or two industries.

So we try not to concentrate on one or few industries. So we try to concentrate, but at the same, we try to be diversified as well. So we try to strike the right balance. Because if you just focus on too much on value, you know, given the market sentiment or market situation, one sector could be so much cheaper than others, but we don't want to put everything in that one basket. That happened maybe a couple years ago in the semiconductor business. So we do, to keep ourselves honest and make sure we're

diversified, we compare our sector composition with the market composition, and then we assess the attractiveness of each sector. So it's basically a combination of value and then the prospects, but, you know, we do, you know, pay attention to the sector waiting and so forth so that makes sure we're not biased toward one sector. You know, although our investors allow us to underperform the market, we don't want to put all of our money in one sector, one basket. That will be, we always say, that will be too risky. So, you know, for us, yeah, We want to be strong in offense, but we still want to be, we want to stay, play strong defense. How do you make sure that the portfolio is resilent, so that, for instance,

a factor problem with experts to Thailand and China not influences you too much? So that's why we try to understand the business thoroughly. So we try to, and also that's why we don't buy just one or two stocks. So we think if we understand that each business do well, then buying 20 to 30 stocks are full, we're fairly diversified, fairly resilient to any risks. And also, we keep monitoring the developments in each of our portfolio companies. So that way we try to reduce risks. Because our goal is to buy the highest quality business at the cheapest valuation.

So meaning that once, that by definition, once we make a buying decision, that it's likely that the company has a very high margin of safety, has a very good business model, and they offer durable products with brands, and they're likely to suffer less when there's economic downturn. So it's bottom-up, so it's company-specific, but we'll look at, you know, to think about the worst situation,

What happens if there is suddenly China bans Korean products? And we'll see, you know, are they too much exposed to China or are they able to sell in their products in India or elsewhere? You know, that kind of stuff. So basically it is a constant review of the potential downfall as well as the vulnerability to macro situation. And when we conclude to buy, that means we think that these companies are likely to, of course, the short term, they could be affected, but we always think about the long term. Is there anything you want to add because I've ended my question list for the interview, something that's interesting to know about Korea, something we haven't discussed, feel free.

Oh, yeah, I think it's a good time right now is a good time. this in Korea because last year Korean economy slowed down, but it's turning around and we expect the Korean economy is grow the faster than before. And also the valuation is cheap, but there is a strong possibility of multiple expansion because of the corporate governance improvement and also a strong possibility, probably not this year, but of upgrading to the developed market in the MSCI index. Also, the exchange rate, the Korean one, along with most other Asian currencies, that depreciated against the U.S. dollar since the pandemic started.

But now we think that once the U.S. Fed pivots to lowering the rate, then probably that will affect all the global currencies, and especially Asian currencies, including the Korean currency. So we think that the current market, also that, as we said earlier, that we have many promising industries as well. So it's a good time to invest in Korea's stocks. Yeah. So also, you know, we started our firm in 2009, but, you know, since then, I mean, Korean market actually has done quite poorly. The annualized return since September 2009

for the market benchmark is 3.4% annualized compared to what has done in, only the worst market is probably China because of the recent downfall. The U.S. done so much better and India and so forth. So I think, but, you know, that type of trend cannot be, cannot last forever, which means, you know, if you go back to 10 years ago, this is when actually emerging market was doing better than the U.S. market. So I think given the valuation and given the trend, we think that it may be, you know, the emerging market, including Korea, will come back. And I think the good time to invest is when the people are pessimistic. So as you know, the famous saying, the bull markets are born on pessimism. And we think Korea may be the right place to invest.

And you add in the factor that governance will improve. And, you know, in Japan, it took almost 25 years for them to recover back to where they were. So, you know, compared to that, Korea is not that bad. and also the, as we mentioned, we're not really betting on the market. That proves why, you know, despite the lackluster market performance, you know, our fund has done over 10% annually in the past 15 years. So we think that if you can be a little bit more adventurousome and be sort of, you know, have the courage to look into something different and then spend a lot of time on,

studying companies, I think there's actually a lot of opportunities for value hunters in Korea. Maybe last question, because you mentioned this upgrade from developing to developed market, what can mean for Korea also in terms of flows? Because as a developed market, I think it's more interesting for certain buyers to invest in Korea then. I think many, of course, not all the global. investors they just follow the index waiting so there we expect that's why we expect more capital inflows once the market is upgraded to develop market status yeah that's right because the emerging market it tend to attract certain type of

investors they're more volatile whenever there is some kind of a crisis or perceived crisis then people pull out of money that's the sort of right now Korean market suffered last year compared to other developed market is because of China risk. And once we become developed market, then we'll attract certain type of more, more pension, more sovereign wealth fund type of investors who tend to have a more long-term view. That means then we will be probably subject to less volatility and then also more inflow of the sort of the more stable capital. So in that, I think it will be positive. I think some Global Investment Bank, I think it was Goldman Sachs, that if the Korea moves to the developed

market status, then net flow of 60 billion. That's how they calculated it. I'm not sure how accurate that is, but they seem to think that is a net positive. When investors buy emerging markets, their basic idea is to buy growing economies such as China and India. And Korea is no longer growing rapidly. more of the mature economy. So Korea remains in that category is a net negative for Korean market, I think. Yeah. So, Tillman, I would encourage you to visit to Korea and to see yourself.

I mean, you know, the MSCI continues to put Korea to be an emerging market, but in terms of infrastructure, technology, education, all the numbers. I mean, it is 13th largest in the world, but to put Korea in the same basket with the, you know, Argentina. Turkey, South Africa, I think is, you know, nonsense. And as you know, the IMF already classified creative, advanced economy, and so does Futsi. This is the MSCI. It's the Americans. They're persistent, but it also has to do with their business as well, because the index is a big business.

Korea is a big part of the emerging market. But at the end, any category in the longer term should reflect the reality. So I think Korea will definitely move to the developed market status. Maybe not next year, but in a few years for sure. Estimated $60 billion, what do they mean in comparison to the current market cap of Korean market? Korean market cap is about $2 trillion. So it's not a huge plus, but it's a net, meaning... So it is positive.

Plus, you know, we mentioned about the retail getting bigger in Korea. So at least we won't see too many people pulling out of money. So, for example, since COVID, I think a lot of international investors pulled out of money. I think it's well beyond, I think, 50 billion is a total amount of net outflow since COVID. So, you know, you add in, I mean, it is a small computer to the large size. the market but it's a small number that makes the market to move then thank you very much for the interview and thank you very much for your tearing the insights in korea and thank you much for the audience listening till now and i hope to see you soon again and for now it's bye bye bye bye thank you

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