[Viewpoint] Do as the super-rich doThe South Korean won is quickly losing its strength and stock prices are crashing. The fear factor dominates Seoul’s financial markets even though the debt crisis everyone fears is on a different continent. Skepticism and panic have possessed local investors, with the most negative speculators betting on a catastrophic domino effect of the fiscal problems in the West.
The government, nevertheless, puts on a brave face. President Lee Myung-bak half jokingly said that, since he has already gotten through one crisis, he might as well battle another. The truth may lie somewhere between the two extremities.
Crisis phobia won’t help anyone. If you ask me, I think the government is right to respond coolly to the jitters about the world coming up to another tipping point like when Lehman Brothers collapsed.
The crisis three years ago was completely different from now in several ways. Regardless of foreigners dumping Korean equities and the won, the foreign media is generally unworried about the Korean economy. Compared with the U.S. and European economies, which are up to their armpits in debt as they slide toward recession, the Korean economy has few faults.
Excess corporate borrowing was one of the main problems during the 1997 foreign exchange crisis, and private-sector short-term debt also posed a risk during the global financial meltdown in 2008. But now the share of short-term debt currently hovers below 50 percent. And the central bank has enough foreign exchange reserves in its coffers with a current account raking in surpluses for more than a decade.
So why are we so scared about our economy? Skeptics warn of a plunge in housing prices, but property prices have been on the rise. The won’s weakening is not so devastating. Volatility in foreign exchange rates cannot be helped due to the opening of the capital market. A weaker won is a boon for exporters, and the dollar’s strengthening has helped ease international raw material prices.
Our trade-dependent economy is vulnerable to external factors, but it is no paper tiger. If the Korean economy is as weak as the skeptics believe, it would have collapsed years ago. But Asia, with China and South Korea at the forefront, remains the soundest regional economy in the world.
Moreover, the worst may be over with the Greek debt crisis. Greece could avoid defaulting on its loans maturing in September after Germany and other major EU members pledged to help.
Local investors will have sold off their investments for nothing. European funds cashed in about 1 percent of their holdings on the Seoul bourse to make up for losses at home, sending the dollar-won exchange rate up.
But the European investors are looking back over their shoulders because they know Asia will remain the only lucrative to place invest. They are not likely to make any money in Europe amid fiscal austerity and belt-tightening for some time. They cannot turn to the U.S., with interest rates at near-zero levels and the economy growing at snail’s pace.
When investment prospects are foggy, it is best to follow the super-rich. Samsung Electronics Chairman Lee Kun-hee and Hyundai Motor Chairman Chung Mong-koo are the economic powers in Korea. They invest their personal wealth with the most sophisticated intelligence.
Their moves are unlike fund managers and analysts, who make a habit of changing their minds. Lee, during a business trip to the U.S., said the global economy will remain sluggish for some time. But his company will nevertheless aggressively sail against the headwind to sustain its prosperity and growth. Chung, while touring the industrial base in Europe, also said the crisis on the continent could serve as a window of opportunity. Hyundai Motor introduced new car models in Europe and geared up for heavy marketing.
We should not shrug off the president’s words either. He should know what he was talking about when he said the Korean economy was faring well during a recent visit to the U.S. Let’s go back to what he said during a meeting with Korean-Americans in Los Angeles in November 2008. When the benchmark stock price index sank to the 900 level, cratered by the Wall Street meltdown, he advised investors to buy Korean shares if they wanted to become rich a year later.
Those who followed his advice are still rich, even if they suffered some losses recently. Heroes are made during wars and the rich during recessions. Hasty decisions based on furiously blind pessimism can only lead to disappointments, regrets and losses.
*The writer is an editorial writer of the JoongAng Ilbo.
By Lee Chul-ho