Research & Insight

A decade is a long time in economics. This is particularly so in Turkey where the most recent ten years feel closer to an eternity. Back in the nineties you could almost guarantee that any period of strong economic growth would soon be followed by hyper inflation and a subsequent sharp hike in interest rates. If only Turkish capital markets back then were as deep and liquid as they are now, those that make a living forecasting these eventualities could all have retired happily to the beautiful beaches of Bodrum such was the predictability of this trend. But things have changed, comprehensive fiscal and banking reform following the 2001 Turkish crisis has evolved the countries economy beyond all recognition and greatly improved resilience to external shocks. Ironically, it took a global financial crisis for the rest of the world to fully appreciate this.

Directionless markets in the summer doldrums. With some exceptions – notably Thailand (+9.4%) and Chile (+7.3%) – most emerging markets drifted gently lower during August. None of the moves were especially significant and only Mexico fell by more than 5%, given its trade links with the US economy – worries about a double dip in the US were prevalent during August. Emerging markets in aggregate fell by 1.9% over the month. Perhaps of more significance than the absolute figure was the fact that this return represented the third consecutive month that the emerging markets benchmark beat the S&P. Optimists (such as us) would suggest this is the renewal of the secular trend outperformance by emerging equities that was disrupted by the market dislocation of 2008.

MSCI Asia ex Japan lost 1.14% after last month’s 5.8% gain. Markets have been more than usually fixated with various economic statistics primarily from the US which have been at times both positive and negative. High unemployment claims, extreme weakness in US housing activity and lacklustre US consumer demand intensified fears of a contraction in US growth. But not all was bad as there has been a flurry of M&A activity which signals cash rich corporates and strong balance sheets.

Despite the seemingly inexorable rise of the “BRICS”, Korea is still the second largest emerging market. The market, as we are sure all readers of this will know, is dominated by the large chaebol (conglomerate) groups such as Hyundai. Their structure is not at all simple, but this was a story we felt should be told…

The report below was written by Kyung-Rae Min, Head of the Rexiter Korean Office, to help explain the implications of the impending sale by the creditor banks of a stake in Hyundai Engineering and Construction. The article relates to the ownership structure and control of the entire Hyundai Group or Groups… depending on who wins…

The MSCI Asia ex Japan index fell 4.91% in the second quarter of 2010. The strongest market was Indonesia which rose 4.22% while Taiwan (-9.31%) and Korea (-7.59%) were the weakest.