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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
comes due within one year. And it's not really clear how they're going to deal with that. They have enough assets. But in the current environment, unless they come up with some creative solution, they'll either have to roll it over and pay some astronomical interest rate or sell assets into a very depressed market.
THEREFORE, IT'S A FACTOR YOU MUST CONSIDER.
Bakar: Still, we have just begun to put our toe back in the water. What we were waiting for was the currency - because the risk today is more on the currency side. It's hard to imagine the stock price going down much more.
It's not that we're macro investors or market timers. We're bottom-up stock pickers. But when you buy a stock in Korea, it takes two or three days to settle. So you don't even know what currency rate you'll get on your purchase until it does.
OlD: Really?!
Bakar: Really. And if the won strengthens in those two or three days, you can find out you paid 20-30% more than you thought in dollar terms - or 20-30% less.
OlD: Talk about a reason for dollar cost averaging...
Bakar: Exactly. It's a problem.
Burbank: It's ridiculous.
Bakar: Therefore, as long as the currency's as volatile as it has been - when it's been moving 25% in one day - then it's a factor you have to consider.
OlD: But if it's the only reason you weren't buying, why didn't you just hedge out the currency risk?
Bakar: You can't - at least not economically. The won is one of those currencies which restrict short selling. If we could have found a way to do it at a reasonable cost, we would have already begun buying Korean stocks.
OlD: You can't go long some stocks and short others?
Bakar: There's no good way to do it that we know of. Everybody's trying to be short all of the things in Korea that you can be short - all of the ADRs, for instance. And, therefore, you can't borrow 'em right now.
OlD: More people wanting to short 'em than supply.
Bakar: Exactly. So we had been waiting for the won to drop to KW2,000 to the $1. But we've been looking for an entry point into Korea - or, at least, into a couple of Korean companies - ever since the currency hit 2,000.
OlD: Despite the won having strengthened 25% since?
Bakar: I just think it was a psychological level - similar to the Indonesian rupiah going to 6,000.
OlD: A selling climax.
Bakar: Exactly. And it gives us some comfort that the worst may be behind us. At least it gives us enough
Page 11 of 14
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