For something that may or may not exist, the Korea Discount-that difficult-to-quantify markdown some economists see weighing down the Korean securities market-gets a lot of attention. Kyeong-Wong Kim, executive director of the Money & Finance and Global Economy departments at the Samsung Economic Research Institute, wants to put it to rest. According to him, the Korea Discount definitely doesn't exist. Addressing a Business Roundtable audience, Kim pointed out that those who argue for the Korea Discount often point to the low price-to-earnings ratios of Korean companies as evidence. However, Kim asserted, valuations of Korean companies only look low when compared to U.S. equity ratios. South Korea is still widely considered an emerging market by global investors, and when compared to other emerging markets like Indonesia and Malaysia, South Korea's ratios are about where they should be. Kim also took issue with commentators who claim the Korea Discount reflects a lack of investor confidence in Korean corporate governance. While recent history has shown that Korean corporations might need to operate by stricter rules, studies have failed to empirically link the governance of a corporation with its stock price. Judging from the many questions about price-to-cash flow ratios and dividend payout rates during the Q&A session, it appeared that not everyone in the audience was convinced by the argument Kim had presented. Apparently the myth of the Korea Discount-or the reality, as some would contend-is too powerful to be easily explained away.

with 

Kyeong-Wong Kim
Executive Director, Money & Finance and Global Economy departments, Samsung Economic Research Institute

Wednesday, June 1, 2005

About the Speaker
Kyeong-Won Kim is the executive director of the Money & Finance and the Global Economy Departments at the Samsung Economic Research Institute (SERI). Prior to his current position, Kim headed SERI’s IMF Task Force as its chief economist from 1998–99, and he was head of research at Samsung Securities from 1995–97. His research areas include the global economy, financial markets and monetary policy. Kim is a permanent committee member of the Korea Finance Management Research Association. Kim received a Ph.D. in finance from Columbia University in 1991, and holds an MBA in finance from the University of Wisconsin-Madison and a B.A. in English literature from Seoul National University.