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[Translation]
¡°The market shows a steady upward movement but it can turn bullish in the long run,¡± said Co-CEO Namho Lee of V&S Investment Management. ¡°Considering the economic indices, I cautiously predict that a value cycle may be around the corner.¡±
CEO Lee was an investment banker who worked for renowned foreign investment banks such as JP Morgan and Morgan Stanley. He established V&S Investment Management in 2006. Its name, ¡°V&S,¡± stands for ¡°Value¡± and ¡°Special Situations,¡± respectively. The investment manager likes a long-term investment strategy to make steady profits but it seeks to make the most of opportunities created by ¡°special situations¡± at the same time. According to Co-CEO Lee, the ¡°special situations¡± include M&A, spin-off and unfavorable media reports and they look for stocks undervalued by those special events.
¡°Basically we are looking for value stocks but, at the same time, we focus on those whose price is expected to take off because of certain events,¡± said Co-CEO Lee. ¡°For instance, everyone knew for many years that Hyundai Engineering & Construction would be up for sale but the issue at the time was who was going to be its owner. For that reason its stock price remained weak. But we saw the construction company¡¯s ¡®event-driven¡¯ value and posted a 50% profit in a year.¡±
Based on the above-mentioned strategy, V&S Investment Management¡¯s flagship account reported a cumulative rate of return of 8.5% year to date even in the face of greater volatility in the local stock market. Given that the Kospi index fell 9.2% during the same period, the account outperformed the market by 17.7%. In this regard, Co-CEO Lee said: ¡°We managed to tide over the bearish market with increased uncertainties.¡±
(Local stock market to ride an upward curve and turn bullish)
Co-CEO Lee predicted that the local stock market will soon ride an upward curve. The Kospi index peaked at 2231 in April and plunged to 1644 in August amid the Eurozone crisis but bounced back to 1963 on November 10. Many experts say that this is comparable to the pattern observed during the global financial crisis in 2008. The Kospi index dropped from 2085 in November 2007 to 1537 in March 2008 and rose again to 1899 in May of the same year. After that, however, the Kospi remained bearish by plunging again to 892 in October 2008. In this regard, co-CEO Lee said: ¡°Unlike what we experience in 2008, I think that the market will become brisk again considering fundamentals, market positions and cyclical factors.¡±
(Market is not in a free fall)
Looking into the economic fundamentals, he said that the current crisis is the matter of ¡°confidence,¡± adding: ¡°When the market is in a free fall, politicians make a move. When the situation gets worse, they will unveil more radical and powerful policies.¡± When the market moves in a certain direction, politicians also move to cope with the changes. He went on: ¡°The United States and Europe are facing a fiscal crisis but they can come up with unique monetary policies to boost their respective markets.¡± In other words, each government will proactively take measures to stabilize the market and boost the economy so it is not necessary to paint a gloomy picture about the market.
¡°American companies¡¯ third-quarter performance was not so bad and the nation¡¯s economic indices remained strong. With China stamping out of inflationary pressures, many people expect that the Chinese government may ease its monetary policy. Those favorable external factors will boost the local stock market for a while. Therefore, it would be more desirable to think of a possible rally, instead of bracing for another plunge.¡±
(Psychological factors lead cyclical ups and downs)
Co-CEO Lee said: ¡°The macro-economic cycle runs a course of despair, hope, growth and optimism. Following the financial crisis in 2008, the cycle has passed despair and hope and is now in between growth and optimism.¡± He thinks that there are attractive opportunities because the cycle is between the phases of growth and extreme optimism as the global economy began to bounce off but there is no apparent growth engine and concerns linger on about the Eurozone, the United States and China.
¡°The unemployment cannot constantly remain at the 9% level in the United States and the Chinese government needs to ease its monetary policy. The European government will also do their best to prevent the recent minor recession from turning into a long-term depression.¡± Another indicator can be a pattern that the stock market reached the peak one or two years after American companies¡¯ profitability spiked to a record high. He points out that it is also noted that a bull market continued when America¡¯s corporate profits growth was higher than the nation¡¯s GDP growth rate.
He continued: ¡°Considering all these, we may expect a bull market that would last much longer than most people think.¡± However, he is not unconditionally optimistic about the future because there are still so many issues to be taken into account.
(Long-term value investment is the key to success)
Co-CEO Lee said that he does not see the current business environment but look for companies with potential to get better in the near future. So he is more interested in a company¡¯s future performance in one or two years rather than looking into its latest quarterly results.
He said: ¡°We are all ¡®contrarians¡¯ because we see opportunities in companies that are completely sidelined from the market. Of course, they do not buy all of the sidelined stocks. Among large stocks, he recommended those in steel and financial sectors because they have become attractive as their price fell below their valuation level. He points out: ¡°When you stick to the value investment strategy, you may experience a failure in an individual company, but hardly in your portfolio,¡± because when you put really good companies in your portfolio some of them will bring you unexpected breakthroughs.
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