Money follows freedom
The author is a columnist of the JoongAng Ilbo.
Politics is soiling the economy. After e-commerce leader Coupang’s IPO at the New York Stock Exchange (NYSE) was announced, Deputy Prime Minister for Economic Affairs and Finance Minister Hong Nam-ki touted the feat of a Korean unicorn. President Moon Jae-in celebrated it as a “second venture boom.”
But in economic terms, it is nothing to be merry about. Coupang earns money in Korea. Its market valuation is near that of Hyundai Motor’s. For national interest, the finance ministry should have been happier to see Coupang go public in Korea and collect taxes from its stock price gains and trade.
Coupang chose NYSE to trade because of its dual-class stock structure. By issuing different types of shares, the owner can maintain control while raising capital. In short, the NYSE appealed more than the Korea Exchange.
Beijing also lost e-commerce giant Alibaba to NYSE in 2014. It introduced a dual-class stock system to lure Alibaba to the Hong Kong exchange in 2019. It radically adopted American style stock structure by yielding its socialist equality principle and allowed Jack Ma to wield control over more than half of the board seats with his 6 percent stake. If he had been better aware of the reality, Hong should have regretted the loss of Coupang and vowed to upgrade the Seoul exchange so that more of the likes of Coupang can choose to stay at home to trade. Authorities in Seoul must be less knowledgeable about capitalism than Beijing officials.
The delay in revising the tax code for stock capital gains and extension of the ban on short sales are the primary examples where politics have come to prevail over economy in Korea. The moves have been made so as not to irk retail investors ahead of the April 7 mayoral by-elections in Seoul and Busan. They could not have been made if policy makers in Seoul had been aware of the “Money Tree” syndrome among young Korean stock investors.
They no longer look to old-school gurus like Warrant Buffet. Their evangelist is Catherine Wood, 65, CEO and CIO of ARK Invest. The fund assets under her management topped $50 billion earlier this month, compared with modest $3.6 billion a year ago, as money poured into her funds with clear narrative that generated solid returns.
All her predictions proved to be accurate, especially on Tesla. In 2017, she predicted Tesla, $60 at the time, would trade above $4,000 within five years, but was ridiculed by big players. They stopped laughing when Tesla’s stock price reached $900 last year. The stocks she picked for a bio-themed exchange traded fund (ETF) turned out nicely. In just a year, Pacific Biosciences stock gained 20 times, Invitae 7 times and CRISPR Therapeutics over 5 times.
There is also personal appeal to Wood. Unlike other big asset managers who are all secretive about their investments and share information with only the VVIPs, Wood posts all her ARK research papers free online. She releases “Big Ideas,” or ARK Invest buys for the year, at the beginning year. This year’s 15 choices included space, genes, EVs, deep learning, autonomous vehicles and bitcoin, with detailed account on why they are promising bets. Enthusiasts as well as novices rush to put their money in the hands of her management.
Gyeonggi Gov. Lee Jae-myung and ruling Democratic Party (DP) Rep. Park Yong-jin argue that short-sales make the stock market an uneven playing field beneficial to foreign and institutional players. But the NYSE is heaven for short selling, as the latest faceoff between retailers and short sellers over GameStop shares showed. Also, capital gains are taxed 22 percent. To invest in Wall Street, Korean investors cannot get decent sleep. Yet retail investors in Korea are happy to put their money in Wood’s ETFs and her stock picks. Liberalism and transparency are the winning appeal.
What’s baffling is that the DP has many stock experts. Rep. Hong Sung-koo, a former president of Mirae Asset Securities, used to be a star broker with 30 years of experience. Rep. Lee Yong-woo is also a seasoned broker who had worked at Dongwon Securities and the Korea Investment and Trust Securities. They stressed the need for short sales to be renewed. But when polls showed an overwhelming opposition to resuming short sales — backed by the political slogan praising retail investors for “being patriotic” — such lawmakers became muted by DP leadership. Why it recruited them is curious.
Big financial names like Allianz, Prudential, Barclays, UBS and Macquarie Bank all have left Korea. The Korean market lost appeal with heavy regulations and low interest rates and growth. Policy makers must come to grips with the Coupang’s Wall Street IPO and the Wood syndrome in Korea. Regulations should be removed from the Seoul bourse and asset management must become open and transparent like ARK. Politicians must keep their voices low and leave guidance to experts. Politics must stop interfering in economy. Mankind’s history has shown that money and talent follow liberty.