Pessimism, Pensions, & “Populism” ?

Welcome to K-conomics, your #1 source for hot takes on the Korean Economy. Today, I'll be recommending another YouTube video (about Korea's very own, homegrown #SamBankmanFried. But, first I'll explore the implications of the state of exports on SK's balance sheet. We’ll also touch on pension reform, and wild accusations of "populism" in local politics. To finish things off I’ll tell the story of how Putin may have accidentally manipulated a local stock. So sit back, relax, and get ready to learn more about the fascinating economic reality of an ever-changing Korea. ??

1. Pension reform coming soon… ft. the abolition of MoonCare

The South Korean government was pretty aggressively pushing for pension reform, but the changes could be postponed to “end of the current government or the start of the next” according to President Yoon. A little ironic considering that during the elections he had pledged to raise the basic pension from 300,000 KRW (approximately 270 USD) to 400,000 KRW (approximately 360 USD) for the bottom 70% of elderly citizens aged 65 or older. There still appears to be an enthusiastic backing for reform; Health and Welfare Minister Kyu-hong Cho gave a statement that many interpretated as a "pay more and receive more" stance.

The national pension premium rate is currently 9%, significantly lower than the Organization for Economic Cooperation and Development (OECD) average of 18.3%. Ho-seon Yoo, a researcher at the National Pension Research Institute, has stated that if the national pension premium rate were gradually raised to 15%, the timing of fund exhaustion, which is currently expected in 2057, could be delayed until 2073. The government plans to release the results of its long-term fiscal estimate in March and finalize and announce a pension reform plan in October. President Yoon Suk Yeol has regularly emphasized the importance of pension reform, stating that it is necessary for the sustainability of the country and for preserving future generations' motivation to work.

He also took the time to accuse his predecessor of “populist” policy, saying President Moon’s healthcare reform (dubbed MoonCare: shoutout #ObamaCare) was populism. Minister Cho parroted Yoon’s election era talking points on qualification theft and placing blame on people abusing the health insurance system, in response to concerns about the current government’s plans for insurance.

2. Everyone needs to buy more TVs ??

Korea’s leading export, home appliances (electronics), has seen a major drop of 40% at the beginning of the year due to a slowdown in global demand. Even big events like the Qatar World Cup and Black Friday haven't been able to boost consumer sentiment. As a result, sales for home appliance companies like Samsung Electronics and LG Electronics have pretty much plummeted. Experts are warning that not only exports, but also domestic demand will likely enter a full-blown slump next year. In November, exports of consumer electronics totaled $490 million, which is a huge decrease from the $1.17 billion in January.

As for home appliance exports specifically, they've fallen by more than 50% over the past ten months, going from $1 billion in May to just $497.37 million in November. It’s pretty obvious to blame the global economic downturn, inflation, and monetary tightening in big ticket countries for this. These factors have contributed to the slowdown in demand for home appliances, and unless consumer sentiment picks back up things will get worse next year.

Samsung Electronics saw a 31.4% drop in operating profit in 2022 Q3, while LG Electronics had a 27% decrease in actual operating profit, (once you exclude their 480 billion won compensation for the recall of General Motors electric vehicles). Both companies' inventory assets have also increased significantly, with Samsung's up 51.6% from the same period last year and LG's up 20%. All of this is leading experts to predict a tough time for the home appliance industry in early 2023.

3. Samchully Group’s stock went to the moon ?? for literally no reason

A local company called Samchully (KRX: 004690), whose main business is supplying city gas, saw it’s share price rise, essentially accidentally. Samchully imports natural gas from the Korea Gas Corporation and supplies it to certain regions, making profits in the winter when there's a lot of heating demand and investing in other seasons. This year, the company's stock price has quadrupled, going from around a steady range of KRW 80,000 to KRW 90,000 over the past three years to KRW 390,000 in 2022, which is a huge contrast to the KOSPI falling from 3,000 to 2,300 over the same period.

The reason for the stock price jump is hilarious because it was linked to Russian and Ukrainian war-themed stocks, and as the war dragged on and natural gas prices rose, expectations for the company's performance also increased. However, there are concerns about the company's ability to sustain this performance, as it relies on temporary factors rather than structural business growth.

Samchully was originally a briquette company, but it switched to urban gas and overseas energy resource development in the 1980s, becoming a leading city gas company in 1997. It announced plans to expand its business area to 30% of total sales on its 50th anniversary in 2005, but new businesses like restaurants and car dealerships currently make up less than 10% of sales. The biggest challenge for this family-run company is finding new ways to grow and expand, as they face an unprecedented market “oopsie”.

Today’s recommendation! A pretty decent summary of how Korean cryptopreneur Do Kwon’s Luna collapsed, from Coffeezilla. I'll be touching on Korea's very own SBF tomorrow, so stay tuned!

I know things are rough right now, but I hope my readers are doing okay… Enjoy the rest of your day, and I’ll see you tomorrow!

References:

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