Member Report : KOREA...For this presentation, I’m going to give you a snapshot of the Korean capital market and then explain some significant regula 琀漀爀礀搀攀瘀攀氀漀瀀洀攀渀琀猀

Member Report : KOREA

Asia Securities Forum15th Annual General Meeting

27-29 Sept. 2010Beijing, China

Korea Financial Investment Association

プレゼンター

プレゼンテーションのノート

Good afternoon, ladies and gentlemen. I’m Jae Young, Han from the Korea Financial Investment Association. I hope next five minutes of presentation will be useful for you to understand the Korean capital market.

1Korea Financial Investment Association

Table of Contents

I. Status of the Korean Capital Market

II. Prospects for the Korean Capital Market

III. Regulatory Developments

プレゼンター


For this presentation, I’m going to give you a snapshot of the Korean capital market and then explain some significant regulatory developments.


I-1. Status: Korean Capital Market - Stock

KOSPI Key data

Source : BloombergSource : KRX, Bloomberg, World Federation of ExchangesNote: Market cap. and no. of listed companies are updated as of March.24, 2010

Daily T/O is based on W1,331/USD, the average FX rate in 2009 (YTD)

KOSPI KOSDAQ

Market cap. (USD bil.) 936.5 88.0

Daily trading amount(USD bil.) 5.1 1.7

No. of listed companies 925 1,032

No. of IPOs (‘09) 5 28

Futures OptionsNo. of contracts(‘09, mil.)

76(World No.6)

1,154(World No.1)

KOSPI Index rebounded, owing to Korea’s robust economic performance

KRX ranks 18th by total market capitalization (as of June,2010), and 6th in Futures and 1st in Options in terms of the number of contracts (as of Dec, 2009)

0

500

1,000

1,500

2,000

2,500

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

(Pt)

Current Status: 1,827.35(2010.09.17)

Historical Highest: 2,064.85(2007.10.31)

プレゼンター


First of all, I'd like to show the status of the Korean stock market. After reaching an all-time high in 2007, Korean stock market plunged as credit crisis spread over the world. Then KOSPI index rebounded to the 90% level of its highest, mainly backed by Korea’s robust economic performance. For your information, the market capitalization of KRX ranked 18th in the world , as of the end of March, 2010. The futures and options contract reached at 76 million and 1.1 billion US dollars at the end of 2009. The option market is the largest in the world in terms of trading volume.


I-2. Status: Korean Capital Market - Bond

Proportion by Investor (OTC market)

3 years Treasury bond yield now at 3.80%(as of Jul, 2010), decelerating an increase on worries over slower growth in the US and China.

プレゼンター


Now let’s look at the interest rate trend for Korea. 3 years Treasury bond yield stood at 3.80%, as of Jul, 2010. It implies the decelerating trend and this is due to the increasing worries over slower growth in the US and China.


I-2. Status: Korean Capital Market - Bond

Annual Trading Volume by Bond Type (USD bil.) Proportion by Investor (OTC market)

Source : KOFIA

From 2006 to 2009 Korea’s bond trading volume increased by 57%* 3,274.4 (2006)→3,077.8 (2007)→3,569.3 (2008)→ 5,156.2 (2009) (KRW, billion)

Domestic institutional investors* account for 93.3% of the bond OTC market, while foreign investors account for 2.4% * includes securities companies, asset managers and other institutions

Source : KOFIA

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Regarding the Korean bond market, the total trading volume amounts to 5.1 trillion KRW. The government bond accounts for 61%. Meanwhile, Institutions such as securities firms and asset managers investing in bonds represent more than 90% of all investors.


I-3. Status: Foreign Investment in Korea

Source: KRX, Korea Investment & Securities

Ownership structure of KRX listed companies (%)

Foreign investors account for 30.4% of the KRX (USD289 bil.), a 3.1% increase from 2008Foreign investors account for 5.8% of the listed bond market (USD62 bil.), a 50.8% increase from 2008

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This slide shows the gravity of foreign investors in the Korean capital market. Foreign investors account for 30.4% at the Korea stock exchange. Their investments amounted to USD289 bil. at the end of 2009.


II-1. Prospects : Korea’s Fiscal Soundness

Korea’s fiscal soundness is in good shape compared to that of other advanced nationsGovernment debt and fiscal deficit as percentages of GDP are 35% and 3%, respectively

Source: IMF Source : IMF

Major countries’ government debtas percentages of GDP in FY2009 Major countries’ fiscal balance in FY2009

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From now on, I'd like to talk about the prospects on the Korean capital market. Let me start with the Korean economy. Even though the possibility of “a double dip” in World economy is very low, countries with a weak fiscal status might be difficult to recover from the previous crisis. However, Korea’s fiscal soundness is relatively in good shape compared to that of advanced nations such as Japan. and Korea’s government debt and fiscal deficit as a percentage of GDP are 35% and 3%, respectively.


II-2. Prospects: Korean Economy

Credit rating Foreign reserves (USD bil.)

Source : Moodys

Moody’s upgraded Korea’s credit rating from A2 to A1 in April 2010

Korea’s foreign exchange reserves rank 6th globally (USD272 bil.) as of March 2010

Source : BOK

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Also, Moody’s upgraded Korea’s credit rating from A2 to A1 in April 2010 and Korean foreign exchange reserves came to USD 272 bil. as of March 2010, ranked 6th globally (S&P downgraded the credit rating of Greece and Portugal to BB+, negative, A-, negative while Korea maintained A status) In light of these developments, the Korean government is expected to continue pursuing its expansionary fiscal policies, while at the same time actively working toward creating jobs and supporting the middle class


II-3. Prospects: Global Market Players

Global market share of Korean Corporations

• Semiconductor & mobile phone: shipments, display: total size of production, shipbuilding: delivery volume (dwt), Passenger car: sales volume, petrochemicals: ethylene production capability (number of tons of ethlene that can be produced annually), steel: crude steel output,

• Source: Korea International Trade Association, Korea Investment & Securities Co., Ltd.

Market share of Korean corporations has been steadily increasing, in particular in the semiconductor, display, and shipbuilding industries

Global Market Share of Korean Corporations (%) Increase from 2006

(%p)

Out of Total*

2006 2007 2008 2009 ‘08 ‘09

Semiconductor 43.9 46.9 46.8 56.2 12.3 7.8 7.2

Display 43.5 43.2 46.2 53.3 9.8 4.4 6.4

Shipbuilding 33.5 35.7 37.5 41.6 8.1 10.2 15.0

Mobile Phone 17.6 21.5 25.3 28.8 11.2 8.5 9.3

Automobile 5.9 6.0 6.6 7.0 1.1 8.3 6.5

Petrochemicals 5.1 5.5 5.5 5.3 0.2 7.6 7.4

Steel 3.9 3.9 4.0 4.2 0.3 7.1 6.9

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Regarding the Corporate Korea, the market share of Korean corporations has been increasing and particularly, the Semiconductor, Display, and Shipbuilding Industries are notable(prominent).


II-4. Prospects: Korean Corporate Profitability and Soundness

Listed Korean corporations recorded a YoY 7.8% increase in assets and a 5.8% increase in operating profitDebt-to-equity ratio, capital ratio, and liquidity ratio were respectively recorded at 100.8%, 49.8%, 117.4% at the end of 2009

Source : BOK Source : BOK

Profitability (increase rate, %) Soundness (%)

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Meanwhile, the Listed Korean Corporations recorded a 7.8% and 5.8% increase in asset and operating profit respectively compare to 2008, and Debt-to-equity ratio, Capital ratio, Liquidity ratio were 100.8%, 49.8%, 117.4% at the end of 2009. The Korean government tightly supervises companies for their financial soundness and foreign exchange risks. One such measure is limitations on project financing by savings banks, etc. This would have a negative short-term impact, but it is clear that in the long term these policies will lead to a stronger, sound mechanism of corporations.


II-5. Prospects: Fund Market and Household Investment

Korean fund market expanded drastically from 2005 due mainly to installment funds** The funds that are invested with a number of periodic payments in the long run

Financial investment products such as funds and equities account for 30% of household financial assets

Source : KOFIANote : 2010 numbers are as of January 2010

Source : BOK

Total equity funds and Installment funds Breakdown of Household Investment (%)

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Korean fund market has expanded drastically mainly driven by the growth in installment funds from 2005, and it will also contribute to the stability and growth of the Korean capital market. On the other hand, Financial Products such as mutual funds and equities account for 30% in household financial assets, which was an increase from 22.5% in 2002. However, it is also expected to go up as the household financial assets are getting larger and national population is getting older.


II-6. Prospects: Undervalued Korean Capital Market

Korean PBR and PER are 1.3 and 10.4 in 2009, respectively, and are undervalued compared to emerging and developed markets

Source: Bloomberg

PBR comparison PER comparison

Source: Bloomberg

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Finally, I'd like to mention that the Korean capital market has been undervalued. Compared with developing market such as India and China, the Korean PBR and PER are relatively low.


III-1. Regulatory Development: The 1st Amendments to the FSCMA

After the Financial Investment Services and Capital Market Act (FSCMA) came into effect on February 2009, the first amendments were made in six key areas

Disclosure Items of Analysts and Reports

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Let’s turn the page into regulatory development in Korea. Since Korea’s financial Investment Services and Capital Markets Act came into effect in February 2009, the 1st amendments were made based on six proposals. Purposes or these amendments are, first, revitalizing corporate funding through capital markets, second, improving the quality of financial services by strengthening requirements for financial institutions and third, providing better investor protection by reviewing fund sales fee and OTC derivatives trades.


III-2. Regulatory Development: Disclosure System on Analysts

“The Analysts Disclosure System” is now available on the KOFIA website in order for investors to gain easy access to information on all analysts registered with KOFIA

Items for Disclosure

Analyst

Items being disclosed

l Name and age

lWork experience (career background and employment history provided on a company-by-company basis; no need to identify each company)

l Status of the analysts (total numbers of analysts) for each securities company

l Status of the reports by analyst (accessed via the website of the relevant securities company)

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Second point for regulatory development of Korea’s capital market is a new Disclosure System on Analysts initiated by KOFIA. “The Analysts Disclosure System” is available on KOFIA’s website so that investors are able to gain an easy access to information on all analysts registered with KOFIA The system includes information such as analysts’ Name and age, Work experience , employment history , and the status of reports by analyst.


プレゼンター


This is all I got for the Korean capital market today. Thank you very much for your attention.

Documents

Member Report : KOREA...For this presentation, I’m going to give you a snapshot of the Korean capital market and then explain some significant regula 琀漀爀礀 搀攀瘀攀氀漀瀀洀攀渀琀猀

Member Report : KOREA...For this presentation, I’m going to give you a snapshot of the Korean capital market and then explain some significant regula 琀漀爀礀搀攀瘀攀氀漀瀀洀攀渀琀猀