Korea Pursues New Strategies To Sustain its Growth Model

SPONSORED REPORT
Korea Pursues New Strategies
To Sustain its Growth Model
Virtually unscathed by
the 2007-2008 global
financial turmoil, South
Korea has rebounded
to near pre-crisis levels.
But lingering concerns
for sustainable
growth are forcing the
government to rethink
its long-term strategies.
By Gregory Curley
SOUTH KOREA’S modern-era track
record is nothing short of amazing.
As one of the world’s poorest countries in the aftermath of the Korean
War (1950-53), it is now flourishing as Asia’s fourth-largest exportdriven powerhouse.
The country’s economy is practically as big as India’s – with a population one-twentieth as large. Korea
already boasts an annual per capita
income of $20,000. As of June this
year, it became the world’s seventh largest holder of international
reserves (US$304 billion).
Institutional Investor Sponsored Report • September 2011
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The banking sector
remains sound and
the stock market is at
a near all-time high.
Meanwhile exports, which grew by 30 percent
last year thanks to robust electronics and automobile industries, are expected to rise another 4.6
percent over the course of this year and its GDP is
forecast to climb 4.5 percent this year, compared to
earlier estimates of 4 percent.
Overseas direct investment also is expected
to recover to pre-crisis levels later this year. In
2008, when direct investment hit a record high of
US$36.85 billion, Korea’s own overseas investment
in the first quarter posted US$9.16 billion.
Stock Market Developments
Taming Inflationary Pressures
170
l Korea
l MSCI world free l MSCI Asia Pacific free
150
130
110
90
70
50
“Risks of weaker demand for Korean exports
from advanced economies and spillover effects
from financial and fiscal stresses in Europe are now
somewhat more elevated,” the IMF reported recently. “As the country remains vulnerable to global
shocks through trade and financial linkages, strengthening the country’s nontradables sector as a secondary engine of growth would reduce the economy’s
vulnerability to external shocks substantially.”
Policy challenges to ensure a soft landing in the
near-term will require appropriate macroeconomic
and macro-prudential policies, namely monetary tightening, greater two-way exchange rate flexibility and improving the overall transparency of the public sector.
1/08
Source: Bloomberg LP
7/08
1/09
7/09
1/10
7/10
1/11
7/11
Further indication that South Korea has dodged
the brunt of the global financial hardship is a series
of lucrative partnerships that have forged long-term
contracts in a number of industries.
Brazilian mining conglomerate Vale has ordered
nearly $750 million worth of new vessels from Daewoo Shipbuilding & Marine Engineering Co. And
Korea Investment Corp., while the country’s $35
billion sovereign wealth fund is seeking to invest in
China’s stock and bond markets to diversify its investments away from US Treasuries. Samsung C&T
Corporation also has signed a $7 billion renewable
energy deal with the province of Ontario.
Demographics and Other Concerns
Yet despite such full-fledged expansion, the country’s newly acquired economic clout has become
somewhat overshadowed by its aging population,
rising rate of inflation, and reliance on exports.
To counter investor concern the government introduced a new series of policies earlier this year to
support the economy, and pave the way for sustained
and equitable growth. Amended measures include a
stronger social safety net and fiscal policies that address the economy’s long-term challenges, including
those related to Korea’s aging population.
2 • Institutional Investor Sponsored Report • September 2011
Rising demand-led pressures, compounded by
the rise in food and fuel prices during the first half
of 2011, are expected to remain strong.
“Core inflation is ahead of target for 2011 and
we expect more tightening with regard to Central
Bank-led interest rate hikes over the short term,”
notes Jun-sung Kim, CIO for Samsung Asset Management. “The government has been more open to
importing any supply shortfalls to ease the burden
on consumers.”
Both the government and Central Bank have been
implementing price stabilization measures since January of this year to address distribution bottlenecks
and anti-competitive practices. The new measures
also will keep “moral suasion” pressures on sticker
prices and minimize the effects of imported inflation
through the rise in valuation of the won.
The Bank of Korea (BOK) estimates headline inflation to fall by 0.4 of a percentage point in 2011.
Price pressures are expected to remain elevated,
with inflation projected to average 4.3 percent in
2011, above the BOK’s 2 to 4 percent target, before
easing to 3.6 percent in 2012.
The China Factor
The easing of growth in China is largely to blame
for recent spillover effects on the Korean market.
“Wage and food inflation concerns from China
have only been partially offset in Korea by the relative strength of the Korean won and relatively lower import tariffs from various other food-producing
countries,” Kim says. “Korea imports just under a
third of its basic food needs from China. Thus food
inflation will be a growing concern.”
But Kim believes the effects will be for the most
part short-lived with food-related price inflation resolving itself over time through import substitution.
SPONSORED STATEMENT
SAMSUNG LIFE
Growing to Meet the Demands
of Korea’s Retirement Market
whole life insurance will grow too.
In May 2011, Samsung Life entered a
Other elements of the new strategy will
new and exciting phase of development
include a realignment of products, brands
when Keun Hee Park formally stepped
and channel strategies to target the
into his role as CEO. A long-standing
retirement and high-net-worth markets,
core figure within the Samsung group
with new product development and
who has served as Chairman of Samsung
comprehensive estate planning services.
Group China and CEO of Samsung Card,
The recent opening of the Samsung
Park brings with him a keen sense of
Life Retirement Research Center reflects
Samsung values of determination and
the efforts being made to make the
creativity – and a host of new ideas.
name Samsung Life synonymous with
Established in May 1957, Samsung Life
retirement planning. “Upon my arrival to
has pioneered Korea’s life insurance
Samsung Life,” says Park, “I witnessed
market. It is a flagship company within the
how Korean baby boomers are
Samsung Group, and is the largest owner
unprepared for retirement and saw the
of Samsung Electronics, as well as other
need for a credible think tank that can
financial subsidiaries including Samsung
develop real life retirement solutions for
Fire and Marine, Samsung Securities, and Mr. Keun Hee Park
Koreans.” Additionally, Park proposes to
Samsung Card. It commands the largest CEO of Samsung Life Insurance Company
increase the productivity of its exclusive
market share in Korea’s life insurance
agency force and transform its top tier agents to be the trusted
space – bigger than the second and third largest players
private client advisors of choice.
combined. It also boasts over 30,000 exclusive sales agents, the
Samsung Life is aiming for total asset growth of 7-8
largest among all insurers in Korea.
percent every year from now until 2015, by which time they
Having built over the years a solid balance sheet, disciplined
should have passed W200 trillion, and annuity growth that
risk management, and a track record of profitability through
outperforms the industry and overtakes the core protection
the sale of high margin protection insurance, Park’s view is
business in APE sales over the next five years. This should,
that Samsung Life today is ready for a new period of growth
in aggregate, increase total value of new business, and
which will transform the company into a global top tier
consequently embedded value (EV).
financial company.
Finally, there is the prospect of overseas expansion.
There are several areas he believes can fuel this growth.
Samsung Life began operations in Thailand in 1998 and
One is demand for annuities. More and more Koreans are
China in 2005, but they are formative steps. The insurer
reaching retirement age, yet the Korea National Pension is
hired former Sunlife Asia CEO Stephan Rajotte to head
becoming less reliable as a source of retirement funding, and
international business in September 2010, and a new era
corporate pensions – only permitted since 2005 – are too
of international expansion can be expected. First Samsung
new to have significant scale yet. That leaves one option. “We
will boost resources in Thailand and China, then within
believe the growth of Korea’s retirement market will be driven
three to five years enter India or Indonesia. “After we have
by individual annuities and corporate pension,” Park says.
proven successful in these markets, we can then consider
There is also a demographic sweet spot for sales of these
the next stages of growth,” Park says. Longer term plans
products. The number of Koreans between the ages of 40
include setting up asset management or property investment
and 60 is expected to be at least 15 million for the next
subsidiaries outside of Korea to manage third party money.
10 years. This group, key buyers of retirement products, is
“We will continue to attract talent to build our international
wealthy and becoming wealthier, with personal financial assets
platform in order to transform ourselves into a globally
accumulating at 9% a year and insurance assets at 11%.
recognized insurance player.”
Another major growth opportunity is in the high-net-worth
market. Between them, the 150,000 Koreans in this category
own financial assets of around W450 trillion – and they are all
Jung Sun Lee, General Manager, Investor Relations
potential buyers of annuities and life insurance, as they seek
Samsung Life Insurance Co., Ltd.
5th floor, Samsung Life Insurance Building
to preserve their wealth and pass it cost effectively to their
Contact
150, Taepyeongro 2-ga, Jung-gu
descendents. “Due to the sluggish outlook on the real estate
Information
Seoul, Korea 100-716
market, we are witnessing growing interest among the affluent
Tel: +82-2-2259-7807
IR Contact: samsunglife.ir@samsung.com
for tax efficient products,” says Park – and only life insurers
Website: www.samsunglife.com
can sell tax-exempt annuities. High margin core death benefit
Institutional Investor Sponsored Statement • September 2011
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Wage inflation in China is pushing many Chinese
SMEs to move to Korea. “Any significant cyclical
slowdown in the Chinese economy will be used as an
opportune time to further invest in distribution and
brand-building franchises in China,” Kim notes.
With the Korean economy also vulnerable to oil
price hikes, the government, in turn, plans to increase incentives for energy-saving facilities, while
developing energy-saving guidelines. Deregulation of
entry requirements in sectors such as health care and
by sales (Samsung’s US$127 billion compared to HP’s
US$120 billion), has been using its reserves to extend
its technological lead over rival chipmakers in Taiwan.
“Larger exposures to faster-growing emerging
economies and a greater aptitude to localize production has added to the profitability mix of Korean corporations such as Hyundai Motor Group
and Samsung Electronics,” says Jun-Sung Kim.
“Given the favorable relative exchange rates versus
the Japanese yen, we expect market share gains to
offset declines in economic growth in the industrialized world.”
Hyundai-KIA Automotive Group, on the other
hand, took advantage of disarray in the US car industry to build up its global presence, toppling Japanese automakers to become the top-selling Asian
carmaker in Europe for the fourth consecutive
month in May of this year.
Too Much Dependence on Exports?
Port City of Busan
Containers stacked up at
a terminal in the southeastern port city of Busan,
South Korea. Exports grew
by 30 percent last year.
medical services, culture, tourism, broadcasting, and
communications services also is underway.
Strong domestic consumption and shoring up of
foreign investment in spite of possible impacts on
exports will leave South Korea virtually unaffected
from key external factors such as the euro zone crisis and a sluggish recovery of the US economy.
Recent appreciation of the won will boost customer purchasing power and lend support to the
widening export field, while reducing any lingering
inflationary concerns.
Driving Up Domestic Growth
Exports grew by 30 percent last year, leading to
a current account surplus of 2.8 percent of GDP,
roughly 0.5 percent above the 2000-07 average. Big
groups such as Samsung and Hyundai-KIA have
shown remarkable gains this year, building up markets effectively during the financial downturn.
The former, having already ousted Hewlett-Packard
to become the world’s biggest technology company
4 • Institutional Investor Sponsored Report • September 2011
Yet, Korea’s export-driven economy is often regarded as one of the continent’s most vulnerable to
external shocks. With exports accounting for more
than half of the country’s gross domestic output,
local banks rely heavily on overseas funding, particularly from the U.S. and Europe.
Sustainability remains an overriding priority
for the government. For Korea to maintain future
growth and narrow any financial shortfall, it needs
to loosen its reliance on exports and shift the focus
to re-stabilizing and strengthening non-tradables.
“The Achilles heel of the Korean economy at
times of economic crises traditionally has been its
heavy dependence on exports for growth and an
insufficient level of foreign currency liquidity,” says
Dr. Yoonsoo Kim, Country Executive for Korea at
BNY Mellon Asset Management and Securities.
“Whenever Korea had been exposed to economic
shocks and crises, its financial markets tended to
overshoot due to its high degree of integration of
its liberal financial markets with the global markets
and substantial exposure to the vagaries of inflow
and outflow of foreign capital.”
Pressures have fallen on the government for further
monetary policy tightening and greater two-way exchange rate flexibility in order to contain overheating
pressures, anchor inflation projections, and prevent
further buildup of leverage in the economy.
A series of amended policy initiatives are being
introduced to ensure that the sources of growth are
broadened beyond exports so that the country can
better handle external fluctuations.
However, the country has weathered worse finan-
SPONSORED STATEMENT
Lotte’s Luxury Brand Goes Global
Lotte Hotels & Resorts is a leading operator
of luxury hotels across South Korea and,
increasingly, overseas.
Founded in 1973, Lotte has its roots in the
heritage of Korea’s very first commercial hotel, the
Bando, established in 1936 – and its 76 years of
experience in hospitality can be felt in the quality of
service it provides across South Korea. Its first hotel,
Lotte Hotel Seoul, was opened in 1979, and has
been followed with the Lotte Hotel World, Lotte Hotel
Busan, Lotte Hotel Jeju, and Lotte Hotel Ulsan.
Today, Lotte operates five luxury hotels across
the country. But the group has grown beyond
the luxury brand and moved successfully into
other niches of the hospitality industry. It opened
a premium business hotel, the Lotte City Hotel
Mapo, in 2009, and followed it with Korea’s first
history- and culture-themed resort, the Lotte
Buyeo Resort, in 2010.
Lotte is also a trailblazer overseas: it is the first
Korean hotel brand to have opened a foreign
hotel without paying a royalty to a foreign chain
to do so. The Lotte Hotel Moscow, a six-star
development, brings the excellence of the Lotte
brand to Russia.
This combination of properties makes Lotte Hotel
the largest hotel group in Korea – and, increasingly, a global player.
Lotte Hotel Seoul, the first of the group’s hotels to open, remains its flagship and the most widely
recognized hotel. For three decades, it has been the hotel of choice for major international events, and over
the years it has frequently been recognized with international awards. The prestigious US travel magazine
Global Traveler named Lotte Hotel Seoul the best individual hotel in Asia for three consecutive years from
2006 to 2008. Expedia.com, the world’s largest online booking website, has named Lotte Hotel Seoul
the best luxury hotel in the city, and it has also won major awards for 2010 from Business Traveller (best
business hotel in Seoul) and the Travel Trade Gazette Travel Awards (best city hotel in Seoul).
The facilities within the hotel are award-winning, too. Pierre Gagnaire à Séoul is the only restaurant
run by a 3-Michelin-starred chef in Korea. It was named Korea’s best restaurant in the Miele Guide
2009-10 edition. In addition to the restaurant, Lotte Hotel Seoul has state-of-the-art facilities created
by world-renowned design firms. It takes Korea’s hospitality industry to another level.
Further expansion is planned for the future. More Lotte City Hotel chains are being developed; one
will open at Gimpo Airport in 2011, and will be followed by others in Jeju City and Seocho. And six-star
luxury business hotels are scheduled to open in the Jamsil Lotte World II Complex and Busan Lotte
Town. The next stage of international expansion will see hotels open in Hanoi, Vietnam, in 2013, and
Shenyang, China, in 2014.
With this expansion, the unique standards of hospitality and service excellence synonymous with the
Lotte name will be enjoyed by business and leisure travellers more widely than ever before.
Institutional Investor Sponsored Statement • September 2011
Contact Information
Lotte Hotel Seoul
1, Sogong-Dong, Jung-Gu
C.P.O. Box 3500
Seoul, Korea 100-721
Tel.: 82-2-771-1000
Fax: 82-2-752-3758
www.lottehotelseoul.com
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cial storms before and there is strong reason to believe it will succeed in doing so again.
“Korea’s dynamic export structure, together
with prospects for potentially strong demand
for Korean goods from major emerging market
economies should be able to counter-balance any
export slowdown in major developed economies,”
Dr. Kim says, “enabling the country to maintain its
current account surplus even under the slowdown
in the global economy.”
With more than 70 percent of Korea’s exports
now being sold to developing markets, there is far
less dependence on strategic products such as automobiles, semi-conductors, and ships to help the
country shoulder further financial upheaval.
Korea’s foreign debt structure and foreign currency liquidity have improved substantially making
the country less vulnerable to sudden outflows of
foreign capital at times of market disruptions.
“Korea’s short-term total debt ratio has dropped
from 51.9 percent (2008) to 38.4 percent (2011), while
the ratio of short-term debt to the country’s external
reserves has shrunk notably from 79.1 percent (2008)
to 49 percent,” Dr. Kim notes. “More significant is the
country’s external reserves, which have increased by
more than 70 million US dollars from 2008 to more
than 300 billion US dollars today.”
Korea’s aging
population will need
to rely on more than
the national pension
system making diverse
retirement plans much
more appealing.
Boosting Pensions and Insurance
South Korea’s insurance industry has come a
long way from being a largely closed industry to
being more of an open industry.
Percentage Distribution by Age
Median Age 2010
Population in 2010 (%)
Population in 2050 (%)
0-14
15-64
65+
80+
World
26.9
65.5
7.6
1.5
M.D.R.
16.5
67.5
15.9
L.D.R.
29.2
65.0
S. Kor
16.2
72.9
Source: United Nations, World
Population Prospects: The 2008
Revision, 2009. Statistics Korea,
Population Prospects for Korea,
2006
0-14
15-64
65+
80+
28.9
19.6
64.1
16.2
4.3
38.4
4.3
38.8
15.4
58.4
26.2
9.5
45.6
5.8
0.9
25.7
20.3
65.0
14.6
3.5
37.2
11.0
1.9
37.3
8.9
53.0
38.2
14.5
56.7
Both healthcare and pension expenditures are
expected to increase by 11 percent of GDP in the
next 50 years (nearly three times faster than that
of the G7 average), requiring adjustment in fiscal
policies beyond medium-term consolidation. In ad-
6 • Institutional Investor Sponsored Report • September 2011
dition to this, the National Pension Fund, which is
currently in surplus, is projected to be depleted by
2060 under current policies.
“Even when Korea’s public pension system is put
together with corporate pensions, the combined income is only 42 percent of the pre-retirement income,” says Keun Hee Park, CEO of Samsung Life
Insurance. “This inevitably means that the shortfall
will have to be met through the purchase of individual annuities. According to our estimates, Korea’s retirement asset reserves will grow from 200
trillion won in 2010 to 380 trillion won in 2015, and
680 trillion won by 2020.”
Demand for Annuities
Stable economic growth in Korea, increasing
demand for annuities, and accelerated buildup of
financial assets due to a sluggish real estate market
are further indications that the country’s insurance
companies need to realign their products, brands
and channel strategies to target these sectors.
Providing Korea’s nominal GDP growth rate can
be maintained at 7 percent until 2015 as forecast
by the IMF, Korea’s life insurance premiums should
grow at a similar pace.
Backed by a respected brand, sound balance
sheet, and proven risk management, Samsung Life
is one of the country’s leading insurance companies and is well positioned to capture the biggest
share of Korea’s ballooning retirement market.
Its total premium income for 2010, including corporate pension and retirement insurance, was 21.57
trillion won. Net income grew 112 percent in 2011
to a record 1.93 trillion won.
“Given the industry premium growth trajectory
we have just seen, Samsung Life has set its average
annual APE growth target at 7 to 8 percent,” Park
reveals. “But this year for FY2011, we expect our
growth to exceed 10 percent.”
Managing for Sustainable Growth
The huge sell off in recent months in the equity
markets across the globe has made Korea one of the
most appealing markets in the world.
Since the market liberalization to foreign investors in 1991, Korea has deliberately moved to enhance returns. This is largely apparent in the way
in which domestic capital expenditure targets have
usually exceeded actual spending.
“Corporate balance sheets are strong; fiscal and national accounts are in surplus, and despite the growth
challenges across the globe, the correction by association in the Korean market provides an ideal time to
SPONSORED STATEMENT
SAMSUNG SECURITIES
Samsung Securities Helps Local
and International Investors
Samsung Securities is the most powerful and accomplished local research and
brokerage unit in South Korea – but its ambitions go further than that. In addition to
cementing its outstanding domestic position, Samsung Securities has aspirations to
become a leading regional broker.
Within South Korea, Samsung Securities stands alone among domestic players. It has
65 full-time analysts, 26 of them actively writing, and covers 165 companies, compared
to the 80 to 100 typically covered by foreign houses.
While Samsung Securities has been number one in the domestic market for many
years, it is also improving in terms of its market share by providing services to foreign
institutional clients, to whom it offers a full range of research and brokerage services.
Already among the top 10 in this regard, it hopes to move up into the top three.
Additionally, Samsung Securities has been building a research capability in Hong Kong,
with impressive results. After commencing major investment and opening an office in
August 2009, the brokerage now has significant coverage in Hong Kong and China, and
is expanding into Singapore and Taiwan. There are already almost 130 brokers, research
Seok Yun, Head of Research
Samsung Securities
analysts and other finance experts based in Hong Kong.
“The initial goal is to cover the full market in these countries,” says Seok Yun, head of
research at Samsung Securities. “And, on a five- to 10-year view, we want to become one
of the strongest regional brokers.” Already, the Hong Kong office services over 130 global
institutional accounts on the Hong Kong Exchanges and Clearing (HKEx), demonstrating
the momentum that is already apparent in the broker’s regional ambitions.
This, in turn, is part of a powerful global presence. Today, in addition to its 101 branches
in South Korea, Samsung Securities has overseas offices in key locations including
London, New York, Tokyo, and Shanghai.
Yun is in the perfect position to place Korean markets in the context of what is happening
in the world economy. Korea is, he says, especially vulnerable to external shocks. “One
“The initial goal
is to cover the
full market in
these countries,
and, on a fiveto 10-year view,
we want to
become one of
the strongest
regional brokers”
characteristic of the Korean economy is its very heavy dependence on exporters,” he
says. “Korea’s ratio of exports to GDP is over 50%, and in addition, foreign ownership is
over 30%. So when global growth turns negative, Korea is adversely impacted.”
When talking to Yun for this report, the market had fallen almost 17% in two weeks.
But this perhaps creates opportunities for international investors. “It is one of the most
notable price declines we have seen in the last 10 years,” he says. “And we believe it is
an overreaction. The market is pricing in a panic in global growth, but the reality is that
even though growth is slowing, the data is not as bad as three years ago. If you focus on
the economic and corporate fundamentals, you see the reaction has been exaggerated,
and the market should eventually rebound.”
Yun notes an increased divergence between the behaviour of defensive and cyclical
stocks. “Clearly, with this high volatility, investors will continue to be defensive, but those
stocks will become overvalued on a relative basis,” he says. And that, once again, is where
opportunity may arise. “At some point, perhaps within the next month, people should start
looking at cheap cyclical stocks, on the basis that the market has overreacted.”
When revival comes, Samsung Securities will be ideally placed to help both local and
international investors position themselves to benefit.
Institutional Investor Sponsored Statement • September 2011
Contact Information
Samsung Securities Co., Ltd. (Seoul)
11F, Samsung Main Bldg.,
2-Ga, Taepyeong-Ro
Jung-gu, Seoul, Korea
Phone : +82-2-2020-7376
Fax: +82-2-2020-7426
http://english.samsungfn.com
SPONSORED REPORT
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start investing in not just Korean growth but emerging
Asian growth proxies,” Jun-Sung Kim of Samsung Asset Management says.
Over the last two decades, Korean equity markets have shown returns in excess of 12 percent
CAGR on volatilities twice the amount.
Curbing Bond Inflows
In August, as foreign bond holdings hit a record
high on the back of the country’s strong economic
growth, government officials were discussing ways
to introduce additional capital controls to curb
surging fund inflows into Korean bonds.
But with economic turmoil sending US markets
into a tailspin and Europe’s debt crisis rattling financial markets, government officials have kick-
Korea’s relatively small, open economy cannot
avoid the impact altogether, however, signs of recovery are in the foreseeable future.
“Korea has been actively diversifying the countries to which it exports. The proportion of exports
to the U.S. and Europe has now fallen to around
20 percent, considerably lower than in the past,”
Yoo says. “As such, the country is much better positioned to come back from the current turmoil than
it had been in the past. We believe it will keep on
the course of recovery.”
Given the country’s significant foreign exchange
reserves and lower short-term external debt, government officials insist that the country is unlikely
to see a drastic capital outflow as it did during the
2008 global financial crisis.
Overcoming External Shocks
Currency traders
Currency traders monitor
exchange rates in a dealing room at the Korea
Exchange Bank in Seoul.
On August 16, 2011,
South Korean shares
closed 4.83 percent
higher, bolstered by
an overnight surge
on Wall Street.
started measures to secure foreign liquidity in the
country’s financial sector to avoid the same pitfall.
S&P’s recent downgrade of the US credit rating
has triggered alarm bells over a possible double-dip
recession. There is an inevitable impact on the Korean economy, yet some see it unlikely to continue
over the long-term.
“Considering the abundant amount of foreign
currency-denominated liquidity, the enhanced policy
measures for foreign capital inflow and outflow, and
support of strong fundamentals,” says Sun Yoo,
chief economist at Woori Investment & Securities,
“We forecast effects of the current financial disorder to be limited.”
8 • Institutional Investor Sponsored Report • September 2011
Instead, they predict the country will be able
to overcome recent external shocks, and that the
heightened external risks will have only a shortterm limited impact on the domestic economy.
From the regional perspective, the foreign
exchange and money markets in Korea remain
vulnerable to capital outflows, although banks’
exposure to external debt has decreased compared to
2008 and the reliance on wholesale funding has also
been reduced.
This may prompt the BOK to leave its key policy
rate unchanged at its current 3.25 percent, despite
the IMF advice that the country should tighten
monetary policy further to tame inflation, which
rose to a four-month high of 4.7 percent in July.
“The immediate policy priority is to ensure a soft
landing and safeguard financial stability – through
proactive monetary tightening, greater exchange
rate flexibility and ongoing fiscal consolidation,”
the IMF said in August.
Korea’s standing rose in two of the four main
categories: government efficiency and business efficiency. In particular, government efficiency significantly improved in areas such as public finance,
financial policies and social conditions. Korea’s
highest rankings were set in domestic economy
(12th), employment (6th), fiscal policy (11th), and
technology infrastructure (5th).
Korea’s overseas direct investment in the first
quarter of 2011 increased by 48.5 percent year-onyear to US$9.14 billion, the Ministry of Finance
(MOSF) announced this year in May. The increase
was attributed to a rise in mining sector investment,
as Korea’s participation in overseas resources development projects expanded greatly in the first quarter.
SPONSORED STATEMENT
The Westin Chosun is Central to Seoul
The Westin Chosun Seoul is one of Korea’s
finest western-style hotels – and the first of
them all. Dating back to 1914, it has been at
the center of Korea’s political, economic, and
cultural activities for almost a century.
Visitors return again to The Westin Chosun
Seoul for several reasons. Among them is
location: it is in the heart of downtown Seoul
and is within walking distance of many major
worldwide corporate offices, as well as
renowned shopping districts.
Another is the quality of the facilities and
infrastructure at the hotel. Following a recent
renovation, led by world-admired designer
Adam D. Tihany, The Westin Chosun boasts
a sleek, sophisticated, and efficient new
lobby area, as well as a new grand ballroom
and five function rooms. Apart from their
impressive appearance, these function rooms
are all equipped with state-of-the-art video
conferencing systems, and are ideal for
functions from business conferences to press
events, weddings, and galas.
Following the refurbishment, The Westin
Chosun Seoul also hosts one of the leading
fitness retreats in Seoul. The City Athletic Club
combines a fitness club, swimming pools and
sauna, retro-fitted with an eco-luxury design
concept. It is easy to be energized in this
environment: natural sunlight streams in through
oversize windows, while the quality of fitness
equipment and whirlpool baths are top class.
Within the 456 spacious rooms themselves,
The Westin Chosun Seoul co m b i n e s t h e
highest quality of comforts and furnishings,
with common sense measures aimed firmly
at the business traveller. They include, for
example, a mobile phone free of rental charge
– vital in Seoul, where many visitors’ own
mobile phones will not work – and a writing
desk with a plush chair. Other advanced
features include Westin’s signature Heavenly
Bed, anti-allergy carpets, premium espresso
coffee machines, LCD TV with Internet, and
voice mail.
The Westin Chosun Seoul provides an
express check-in service, ensuring that
busy travellers move seamlessly to their
rooms, whether for work or play. Guests are
welcomed with a personalized escort and
luggage service at the airport and, upon arrival,
are taken directly to their room, circumventing
queues and dramatically reducing the time
spent at the check-in desk.
Another new advance at The Westin
Chosun Seoul is The Circle, a new lobby
lounge. This provides an ideal meeting and
resting place for guests, with an elegant yet
welcoming atmosphere. The lounge smoothly
transitions into a bar in the evening, with a
selection of wines, champagnes, whiskeys,
cognacs, and savories.
As well as new options, The Westin Chosun
Seoul has also ensured that it has kept the
things that have made it so successful for so
long such as The Ninth Gate Grille, originally
opened as Korea’s first French restaurant,
Palm Court, in 1924. The Ninth Gate Grille
has been a popular choice for visiting
dignitaries, business executives, scholars,
and artists for 87 years now, and today is an
international style brasserie with a vibrant,
lively atmosphere. Every window table offers
a breathtaking view of the Temple of Heaven,
a three-tiered Korean pavilion painted in
traditional tones of green, terracotta and blue.
This religious edifice, dating from Korea’s
penultimate king, Kojong, has remained
tranquil and unmoved as the city of Seoul has
grown and developed all around it.
The Westin Chosun Seoul was rated one of
the World’s Top 100 Hotels for four consecutive
years by Institutional Investor, and for three
consecutive years was ranked the best hotel
in Seoul by Asiamoney magazine. Awards like
these reflect a hotel that combines everything
busy travellers need: good location, top service,
world-class facilities, and excellent rooms.
Phone: (82-2) 771- 0500 Fax: (82-2) 752-1443 email@westinchosun.co.kr www.westin.com/seoul
Institutional Investor Sponsored Statement • September 2011
SPONSORED REPORT
> KOREA REPORT
Is a “Mega Bank” Coming?
The government has made several attempts
to sell off its US$6bn stake in Woori Financial
Group (WFG), all of which ended unsuccessfully.
Although a successful disposal would boost WFG’s
share price, Sun Yoo believes the effects of a sale
would have little immediate impact on Korea’s
financial industry.
“Unless privatization efforts culminated in the
creation of a so-called ‘mega bank’,” Yoo explains,
“we foresee no significant changes save for the
change in the stakeholder structure itself.”
Woori Financial Group stands as the country’s
leading financial group so a sell off alone would not
bring instant wealth. Instead, as Yoo says, “Further
development of WFG – and the Korean financial
market in general – will be achieved through both
the enactment of strong visions and goals, and via
competition with other institutions in the global financial sector.” l
Korea’s Booming Retirement Market
With 16 million people in Korea between the ages of 40 and 60 unprepared for retirement, there has
never been a more opportune time for insurance companies to step up their marketing initiatives.
As these figures are forecasted to remain this way for the next decade, neither Korea’s corporate pension nor public pension system alone are enough to sustain the retirement needs of its aging population.
According to a recent Korea Insurance Research Institute (KIRI) insurance survey*, 22% of the population does not own any insurance.
Such realities open the playing field considerably. Life insurance companies through the country
are making amendments to get a firm handle on three
critical areas.
What will drive the growth of competing companies
forward are the retirement market, high-net-worth market
and the strengthening of overseas markets.
Weakening stability in the country’s housing market
also explains recent surges in the demand for tax-exempt,
or “non-tax qualified” annuities. Offered exclusively by
life insurers, policyholders are exempt from investment
income tax, providing the plan is held for ten years or
more. Many in the industry believe them to be the footing
for Korea’s long-term growth in the retirement market.
According to Samsung Life Insurance CEO, Keun-hee
Park, “The dwindling outlook for the housing market
poses great opportunity for life insurers such as SLI.”
Currently, 80% of Korean’s wealth is concentrated in
real estate. “People have been investing in property as
the most reliable asset to fund their retirement. Such is
not the case anymore. As more and more people keep
switching out of properties into financial instruments
to preserve and accumulate wealth, the financial assets
pie will continue to grow. This, in turn, will lead to a proportionate increase in life insurance.”
This presents enormous changes for Korea’s life insurance market as a whole. And given the tax
benefits and medical risk coverage needs of the population, Park has little doubt that life insurance will
play a prominent role in Korea’s financial earnings for many years to come. l
* Survey conducted annually on a statistically significant sample representing Korea’s entire population and density by area as prescribed by the National Statistics Bureau (KOSAT).
10 • Institutional Investor Sponsored Report • September 2011
SPONSORED STATEMENT
(clockwise
from top left)
The Shilla
Seoul; The
historical
banquet
annex, Yeong
Bin Gwan;
Private
Beach House
at The Shilla
Jeju; The
Shilla Jeju
THE SHILLA’S UNIQUE STYLE
The Shilla Seoul is world-renowned for its combination of luxury service and Korean hospitality.
Opened in 1979, The Shilla Seoul has been considered the pinnacle
of Seoul hotel luxury for 33 years. It continues to improve: a major
renovation in 2006 transformed it into a leading lifestyle center, more than
a hotel. It is considered one of the leading luxury hotels in the world, and
not just because of its state-of-the-art facilities and services; the attention
to traditional design patterns, architectural style and building materials like
limestone and granite are all part of the unique Shilla experience.
Its surroundings, on 23 acres of lushly landscaped parkland within the city’s
financial district, are another of the reasons the 465-room The Shilla Seoul is
considered an iconic landmark. Within the hotel, acclaimed restaurants offer
international, Chinese, Japanese, and French cuisine, while a Guerlain spa
and shopping arcade bring still greater comfort to guests.
The Shilla Hotels & Resorts is part of The Shilla – itself part of the
Samsung group, Korea’s largest business conglomerate – begun in 1973
as a hotel business and today is a premium lifestyle leader active in premier
hotels, duty free, and other lifestyle and leisure business.
Today, the group operates hotels in Seoul, Jeju, Geoje and in China,
where the Jinji Lake Shilla Hotel was opened in 2006 to lift the level of
the hospitality industry there. This is expected to be the first of many
hotels in China.
The Shilla name comes from an ancient Korean dynasty, considered the
country’s golden age for the outstanding achievements that took place in art
and culture during that period. Shilla united the three ancient kingdoms of
Korea and began trade and cultural exchanges with other countries; similarly
today The Shilla Seoul promotes trade and culture by making it easier than
ever for the international visitor to experience Seoul in exceptional comfort.
The Shilla Seoul is one of the most frequently awarded business hotels in
the world, having won frequent awards from publications including Conde
Nast Traveler, Travel & Leisure, Zagat, and Institutional Investor. It is a member
of The Leading Hotels of the World.
Those who have experienced the The Shilla Seoul are encouraged to
explore other Korean locations for the same experience of hospitality and
luxury service.
The Shilla Jeju is located on the Korean resort of Jeju Island – often
referred to as the Hawaii of Korea. This 429-room resort offers an
uninterrupted view of the Pacific Ocean and Mt. Halla. Relaxing as this
view is, guests can also enjoy spa/wellness facilities such as a full-service,
on-site health spa, sauna, steam room, and spa tub.
Guests are pampered with an extensive menu of treatments from
signature hotstone body massages to facials, and nutrition consulting. The
business traveler can take advantage of The Shilla Jeju’s well-equipped
premier confernece venue that is designed for hosting numerous high-level
international gatherings .
And Geoje Samsung Hotel, on Korea’s west coast, is a business hotel
catering to nearby Samsung industrial sites. This property has everything
from translation and secretarial services available in its business center to
banquet facilities and four conference rooms.
Since its launch in 1986, The Shilla Duty Free has grown into the leading
duty free retail company in South Korea. The Shilla Duty Free owns and
operates eight duty free shops around the country, as of August 2011,
including its flagship store in Seoul and the Incheon International Airport store.
It showcases over 500 world-famous luxury brands including boutique items,
fashion, jewelry, cosmetics, and watches.
The Shilla’s lifestyle and leisure business is one of its new core
businesses as the brand develops more lifestyle components. This
embraces development, management, and operation of food and
beverage businesses beyond the hotel, as well as luxury fitness clubs
and travel agencies.
Whether you are in South Korea or China, The Shilla brand continues to
represent the highest possible quality of service and luxury in the industry.
The Shilla Seoul
202 Jangchung-dong 2-ga
Jung-gu, Seoul, Korea, 100-856 Tel: +82-2-2233-3131 Fax: +82-2-2233-5073
Institutional Investor Sponsored Statement • September 2011
The Shilla Jeju
3039-3, Saekdal-dong
Seogwipo-si, Jeju-do, Korea, 696-808
Tel: +82-64-735-5114
Fax: +82-64-735-5415