Mike and all,
since Korea did so much damage to our beloved QCOM, may be we should revisit and update the current events over there. Here are my notes.
2/6/98 One of the most significant development is the agreement between the powerful unions and the government, allow corporate layoffs. In exchange, the government promised unemployment and medical benefits, plus some retraining programs. Once considered employees for life, now Korea Inc. will be heading into their version of corporate downsizing with massive layoffs, similar to what the US went through the 1990s. This move is expected to add 1.5 million to the unemployment lines. As of Dec 1997, the unemployment rate in Korea was 3.1% or 658K. For the entire yr of 1997, the rate
was 2.2%. Though the outlook is grim, it is still substantially better than the earlier estimates of over 20%. This agreement
with the unions should be considered great news for Korea Inc. Profits should soar, just like the US round, as cost cutting
measures show up on the bottom line.
The first tier liquidity crisis is now over, thanks to the US$57 billion IMF bail out and the $24 billion roll over of the global
bank loans. The move now is to stabilize the Won and lower over night loan rates. The IMF targeted around 30% (over 20% from another source) as part of the rescue package. This target, however, was before the $24 billion roll over at only 2.5% over LBOR. This is higher than the .3% over LBOR rate during Korea's better days but much lower than the 5+% at its peak. The over night bank rate did peak at around 32% and closed (I think) at 18.5% on Friday 2/6/98. Not sure whose target it is but I read that they are hoping for an exchange rate of 1500 won for the first half of 98 and 1300 won for the second
half, vs the current rate of around 1570 won.
What is not as clear is the second tier liquidity crisis. While the Korean banks are the recipient of the $24 billion bail out,
corporate Korea owes the Korean banks about US$12 billion in short term debts which are due by March 1998. To put it in perspective, $12 billion amounts to about 10% of bank lending and 25% of short term debt. During 1997, a record breaking 15,000 (17,000 from another source) Korean firms went bankrupt. If these loans are not rolled over, more failures, once estimated at over 50,000 (how many firms are there in Korea?), are inevitable. They include the Chaebols like KIA, which failed last yr. On the other hand, Korean banks are under pressure to increase the quality of their loans. Looks like one of
double-edged swords to me. 10 smaller merchant banks, holding about US$10 billion of commercial paper, have already been closed. More may follow.
CPI went from 4.7 to 8.3%, from Dec 96 to Dec 97. They hope to keep inflation below 10% but too many ifs. Consumer demand dropped 4.9% in December, marking it first time it dropped in 13 yrs, since Jan 1985. Industrial output grew at 2.4% in Dec vs 6.2% in Nov, the lowest in 46 months.
M&A activities should be fast and furious in 1998. Hungry for foreign currency, compounded by easing of foreign ownership of Korea Inc. rules, there are now sharks in Korea waters. Whether they will choose to fight off the shark attacks at all cost or choose to sleep with the enemy remains to be seen. Some combination is most likely.
All in all, Korea may be the first to recover from the Asia flu. A fast Korean recovery, no doubt, would do wonders for QCOM.
Unfortunately, China, HK and Japan remain very murky. My worry of the day is actually the domestic market. The NASD went from 1052 to 1291 in 1996, a 22.7% increase. For 1997, it went from 1291 to 1570, a 21.6% increase. So far this yr, for only 5 weeks, it has already gone up 7.9%. One could argue that 1996 and 1997 were supported by the best years of corporate growth. Can 1998 sustain this break neck pace?
In summary, I guess I am still looking for late March and early April, unless there are more QCOM type super early warnings in the mean time.
Ramsey |
