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Why Your Next Car May be a Hyundai
I have been banging on about South Korea (EWY) for some time now as the “K” that should be in the acronym “BRICK”, the country that has successfully carved out a niche between the rock and the hard place, China and Japan. So when the recent Vice Minister of Finance for the ROK, Byongwon Bahk, passed through town, I leapt at the opportunity to have dinner.
The wrenching, soul searching rebuilding and re-regulation of the financial system the US is suffering now, South Korea went through during the Asian financial crisis in 1998. That meant Korean banks entered the recent meltdown with less leverage, better balance sheets, and a healthier consumer loan book than its American counterparts. These institutions have non performing loan ratios to kill for.
The happy dividend was a classic “V” shaped recovery last year, it’s GDP hand springing from a -5% rate to a +4.5% in a matter of months. That enabled the KOSPI, the main Korean stock index, to outperform China’s, bringing in a 57% return in 2009--no mean feat. An export led recovery boosted the current account surplus, suddenly transforming the Won into a hard currency.
This stellar performance gained Korea membership into the exclusive G-20 club of industrial nations. Korea is now pursuing a clever export strategy by climbing up the value chain from below and getting American and European consumers to replace more expensive Japanese and German cars with KIA’s and Hyundai’s, which deliver the same quality for half the price.
I was blown away when I heard that Korea Electric Power won the contract to build four giant 1.4 megawatt electric power plants in the United Arab Emirates for $20.4 billion. The announcement was a thumb in the eye for the deserving French, whose EPR 1600MW reactor was thought to be the hands down winner. No doubt some old fashioned incentives were in play, but the harsh reality is that the KEPCO bid was thought to undercut competitors by as much as 50%. My only regret about this deal is that I will no longer be able to fly my Cessna down a long uninterrupted stretch of the Emirates coast, a restricted area almost certainly about to pop up on my navigation chart. Last time I checked, those planes didn’t carry anti missile countermeasures.
The deal speaks volumes about the direction the global economy is taking. In one fell swoop, South Korea leveraged its low labor cost to take a great leap up the international value chain, using what is basically a simple technology. What is a nuclear power plant, but a fancy way to boil water? Bottom line: South Korea takes a quantum leap ahead in the race for global competitiveness, while the US falls further back into the dust.
There are challenges longer term. Korea has to win the race to develop a service economy, while its elephantine neighbors are still over reliant on manufacturing. Think medical tourism a la Bangkok and New Delhi. It also has the world’s lowest birth rate, which at 1.19, is far below the replacement rate of 2.2. Seoul is the easiest major city in the world to flag a taxi, drivers outnumbering New York by 7:1 on a per capita basis, as this is a traditional parking palace for the unemployed. As I know you are all astute followers of demography, you’ll immediately grasp that fewer babies today mean a dearth of consumers in 20 years. There also is the small issue of the megalomaniac who lives next door with the starving million man army.
Use this global correction to accumulate the South Korea ETF (EWY). And those who don’t see this as a life or death contest for economic survival that we can no longer take for granted, better get their heads out of the sand.
The only downside of the dinner for me was that after gulping down huge quantities of garlic soaked kimchee, my social life was put on an indefinite hold.
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .
Great but keep in mind that Korea has a real estate bubble that hasn't been busted in 2008-2009 and its economy is very sensitive to a China bust. Probably more sensitive to China than Brazil.
Also the KRW moves in step with the KOSPI index, meaning that when the stock market is strong you will also gain currency from currency appreciation, but when the stock market falls so does the currency.. double whammy.
I believe Hyundai exports their cheaper models abroad, while keeping the top models domestic. That was the way they wanted to market themselves, as a mainstream company. BMW did the opposite of this by exporting the 3 series or higher while keeping the 1s and 2s domestic. They wanted to been seen as a top notch brand. BMW's approach worked very well in the past and might continue to work, but in this environment Hyundai seems to be positioned best.
Hyundai, along with Samsung, also own an absurd amount of real estate in Korea so they are very hard wired into the whole economy. So if you were to go long Korea I would recommend picking up shares of those particular companies instead of the ETF.
Those "giant 1.4 megawatt electric power plants" power output must be in error; even trailer mounted mobile gen-sets have 30MW rated output power.
When buying a nuclear power plant, probably not the best idea to go with the lowball bid.
LOL. Don't worry dude: they will use the same high-quality steel for that reactor core as they do for those great Kia engine blocks.
the horror...........
$4/share profit. Thanks
so you booked 40 bucks lol
why your Next Car May be a horse drawn wagon
MERDE
Think I will keep my f150 another ten years and buy non-decaying items with my paper money.
Toyota is the only car I would want...
i bought TM the day MHFT suggested it (actually a day later since I get the advicer free, and sold it yesterday for a $4/share profit. Thanks!
I was just in Seoul and was shocked at the high level of spending. The Louis Vuitton store had a line literally 200 meters long! Do you think all these people have the cash their spending?
This kind of reminded me of Americans lining up to buy SUVs in the 90s and early 2000s.
And for over 15 cab rides I didn't sit in 1 car with more than 70K kilometers...
You forget there's 20MM+ people living in Seoul, and I'm guessing there isn't a LV on every corner (although most of the large department stores have duty-free sections with various high-end brands). Averages along would tell you you're gonna see some heavy foot traffic.
kia is owned by hyundai. their small suv's are built on the same platform. Iv'e owned 2 kia's some are good, some have problems, basically, the bottom of the line cars, are a good deal, but don't plan on keeping it for 10 years
The article provides no solid proof that Hyundais are decent quality vehicles. From my own research, because I am looking into buy a new vehicle soon, I am quite skeptical about Hyundais. I want to believe, but I have been down this road so many times before.
dewd, the 2011 sonata will blow the competition away. check out some of the reviews. here's a few pics.
http://www.youtube.com/watch?v=nnfUH61pXf8
Anon 10:36 here.
This is one of my aforementioned anecdote articles:
http://www.ritholtz.com/blog/2009/10/value-proposition/
Now this makes far more sense than the TM article.
But a service economy? That's partly how we got here. Unless this thesis is predicated on service as an "export", using items produced internally (i.e. *tourism) it will be doomed. The greatest challenge to a service econ is attitude. Koreans are perceived by many as a nation of New Yorkers....rude.
I just think they mean business, and don't care for ego circle jerks.
I believe ZH makes some money from allowing this damn spammer iamned all along the table.
Good for ZH.
Finally someone speaking my language (literally). They're basically the next one's to fall in line in terms of productive nations after Japan in the 60s/70s and Taiwan in the 80s/90s where we saw these two move up the value chain. There are a couple of things about their economy specifically that give me a lot of pause versus Taiwan/Japan, the largest two being rampant entrepreneurialism and competetive innovation both in terms of product and education. Think Japanese-levels of education mixed with an American-style of rugged individualism unencumbered with the stereotypical Asian consumer's propensity to save and aversion to credit spending.
Normally I'd say "in the long run we're all dead", but at this stage of the economic game, all bets are long term. As far as the garlic, mass quantities of soju and red ginseng (preferably together...mmm...baekseju...) will take care of that.
Are you a hypocrite ? Yesterday you were touting Toyota stock and today you are touting Hyundai cars !! I dont understand !!
Uh, did you not catch the mad part in madhedgefundtrader? It didn't mean that he was angry, just demented.
Anon @9:26: Hyundai has a plant in Alabama, and KIA just opened a plant in West Point, Georgia. The non-union South.
I have been seeing more articles and hearing more anecdotes lately of Hyundai's increasing quality. They must be doing something right.
Hyundai and Korea are both kicking serious ass in the world economy.
We buy Korea's bearings for our import co. in Peru. No quality problems. Hyundai is designing their cars now (and so replacement parts are sometimes made just by 1 supplier, hello monopoly for us!). Hyundai is getting stronger in almost every country I visit.
I had also read that Korea was even ahead of us in battery and magnet technologies.
Too bad about the little weirdo they have next door.
Actually the little weirdo is a constant reminder of what could happen if they let their guard down, competitive wise, and turn into the ugly old elephant shriveling into dust that used to be called America.
Sadly we're not turning into dust, we are dust, as GM and Chrysler are proof positive of that.
In Canada, Nissans and Volkswagens built in Mexico are cheaper than Hyundais and KIAs built in South Korea.
Multinational companies can produce their cars where the labor is cheap and taxes are low. And for this reason, South Korean companies don't have any advantage in terms of pricing.
Best engineering design and best quality is what wins the competition now. And perhaps South Korean cars will become more popular, after the recent massive recalls by Toyota and Honda.
I have rented the KIA mini van a number of times on vacation. I was impressed with the quality
Next car for Americans to own is a bicycle, that is after hyperinflation sends gas price so high that driving cars is no longer affordable.