POSCO and EWY
A leading company in the South Korean ETF (EWY) is the giant steelmaker POSCO (PKX). It has controlling stakes in 20 domestic companies and 43 foreign firms according to a recent profile in the Economist. Its subsidiaries include South Korea’s sixth-biggest construction firm, a power company and a computer-services provider. The company wants to increase sales from 42 trillion won ($38.8 billion) this year to 100 trillion won in 2018, and steel output from 35m to 50m tons.
As well as planning to expand into shipbuilding, POSCO is looking out for opportunities to acquire steelmakers in Asia. It hopes to begin work soon on a 12m ton steel-production plant in the Indian state of Orissa, where it also has mineral rights. And next year it hopes to complete the construction of a cold-rolling mill near Vietnam’s Ho Chi Minh City, and an automotive steel-sheet plant in Mexico to supply General Motors and Hyundai Motor.
Like other steelmakers, POSCO has sought to acquire mines to insulate itself from the commodity-price boom. The company has stakes in two iron-ore mines and seven coal mines in Australia and the firm is looking to buy mines in Africa, Siberia, Indonesia and Eastern Europe, and has a goal that 30% of its raw materials should be supplied by mines in which it has a stake.
Mr. Kang Man-soo, the South Korean finance minister, is pushing ahead with the privatization of state-invested companies such as Daewoo Shipbuilding and Marine Engineering, despite slowing growth and intense political opposition. “Apart from exports, everything – including investment, consumption, employment and the current account balance – is showing a trend similar to that of 1997.”
South Korean inflation is at its highest level in almost a decade and Korea will likely record its first current account deficit in 11 years. Unlike 1997, however, the country has ample foreign exchange reserves – seven times pre-crisis levels.
EWY is down 2% in mid-day trading.
Ireland gains from U.K. global tax net
The New Ireland closed-ended fund (IRL) has been trying to get some traction and has recovered somewhat lately when Irish-Allied Bank (AIB) has a good day or two. But an upward trend is not clear.
The Financial Times notes that many U.K. multinationals argue that too much of their foreign profit potentially falls into the British tax net under existing anti-avoidance rules. Ireland, which does not apply similar rules, is proving an attractive alternative.
Fears of a corporate exodus from Britain were reignited on Wednesday when Henderson Group, one of Europe’s largest investment managers, said it was considering moving its tax base to Ireland. Earlier this year, Aberdeen Asset Management, a big global fund manager, announced that it is considering relocating abroad.
In addition, Charter, an engineering company whose origins go back to Queen Victoria, announced on Thursday it was switching its tax base to Ireland to cut its tax rate and compliance costs.
The Economist points out that the Irish economy, and in particular its real estate and financial sectors will face a tough environment going forward as demand for loans will continue to weaken in the next few years. Mortgage borrowing, corporate investment and, to a lesser extent, personal consumption are all expected to be considerably lower, as the economy slows and the property market undergoes a correction.
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Think-About-It
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Sep 06 07:07 PM