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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
comfort to begin to put our toe back in the water in Korea at KW1,500 or even KWl,400 to the $1 - whether we expect the won to weaken further or not, (which we do).
We expect the U.S. dollar to continue to strengthen against the yen for a variety of reasons - which should put pressure on the Korean won to weaken further, too...
OlD: So Korean products stay competitive...
Bakar: Exactly. Also, if the won and interest rates wind up stabilizing anywhere near today's levels, many highly leveraged Korean companies will be scrambling to pay off dollar-denominated debt. And many of them will ultimately have to declare bankruptcy.
But if our entry price is right, we don't mind if our first purchase is our worst purchase. In fact, we like it.
OlD: Then just buy a few shares in my name - although margin and options generally work best...
Bakar: If we like something, we're happy to have it go down and buy more.
BUT THE PRICE IS RIGHT....
Bakar: But a cheap currency alone won't be enough. Korea also has to undertake a variety of reforms.
OlD: Are you sure that this isn't still a short?
Bakar: And because Korea's been forced by the IMF to agree to certain reforms, they're at least talking about doing some of the right things - like increasing the percentage of Korean companies that foreigners can own, deregulating their financial system, creating transparency and so forth.
But are the changes far reaching enough? No. And will they ever be implemented? Again, we're very skeptical.
Also, the rescue package is designed expressly to bail out the banks. But nearly all publicly traded companies are highly leveraged, too - many of them enormously so.
It's not clear to us how the bailout solves their problems - especially if, as we expect, a result of IMF-imposed policies is much slower growth.
OlD: What would it take to give you confidence enough to get back into Korea in a serious way?
Burbank: Were they to lift the foreign ownership limit so foreigners could acquire companies, I think we'd be very interested - because, then, asset plays would happen.
Bakar: Although, frankly, even then, we find it hard to imagine the Korean authorities standing by and allowing foreigners to buy controlling interests in their companies. When it comes to Korea, we've learned the hard way, unfortunately, to believe it when we see it and not before.
OlD: You and most of the rest of the planet, I gather.
Bakar: However, we were pleasantly surprised by a couple of statements Korea's new president just made. First, he said he hadn't fully understood the magnitude of the problems Korea faces - that they're very big and that Korea has to "take some pain and bite the bullet."
OlD: Refreshing realism. That is encouraging.
Page 12 of 14
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