South Korea: Opportunities to go for the green

Benj Gallander and Ben Stadelmann
Friday, February 5, 2010

Back in 1997, a time buried in memory for many investors, the Asian Contagion roiled financial markets. South Korea was at the epicentre of the storm, with the country’s huge conglomerates, the chaebol, overwhelmed by their huge debt loads, which led to numerous failures and takeovers. Sound familiar? Plus ça change…

The Korean currency, the won, was more than halved in value. The IMF came in with their tough rescue plan, and it is debatable whether that helped the economy or plunged it deeper into despair. In Korea, many know that time as the IMF crisis.

Last year, with the global economy in a tailspin, the South Korean economy again took it on the chin, with the won dropping in value by about 40 percent. But once more, with the improvement in the worldwide economy the nation recovered, returning to its status as one of the fastest growing, and the world’s 11th-largest exporter. Exports for January were up 47.1 percent over the same month last year. Part of this is because of the high-quality products this nation produces, which, though not “Chinese cheap” in price, are not “German expensive” either.

This country is often overlooked by investors. It certainly does not have the cachet of China, or the sheer growth potential of some other emerging economies. But there is promise for those scanning for diversification. The Korea Composite Stock Price Index, the Kospi, has become much more intriguing to foreigners over the past few years. Some familiar stocks featured in this index are Samsung Electronics, Hyundai Motor and Daewoo.

In fact, last month Samsung signed a $7 billion deal with Ontario to develop wind and solar power. The plan is to provide electricity for 580,000 homes, while creating 16,000 jobs. This company is one of many looking to green technology to propel growth.

Last fall, Benj headed to South Korea via KOTRA, an organization whose purpose is to promote trade and investment. He followed in the footsteps of James Sbrolla of Toronto’s Environmental Business Consultants and Andy Campbell, a director of waste diversion for Ontario, who heads the province’s Blue Box recycling program. The initiative had over $40 million to spend to improve recycling, of which about half remains.

Sbrolla, chairman of Toronto’s Environmental Business Consultants, states, “Many North American companies in the environmental sector have challenges investing in technology and often stick with the old ways of doing things.” He has teamed with Kevin Jones, President and CEO of OCETA, where the slogan is “Partnering for a Sustainable Future.” The pair often look to see what’s going on overseas. Korea, Sbrolla believes, is a country on the leading edge of the environmental agenda.

Like speed dating, Benj spent 40 minutes with eight different companies, plus a couple that crashed for a few minutes each. He met with Ionia Environmental, which has a system for sorting plastic with infrared rays. The company is hoping for a $25 million (US) IPO. Injung Corporation has an auto-reverse vending machine that enables recycling by slicing and dicing plastics and glass, plus a homogenization machine that turns waste plastic into oil. PER E & T, has an alternative to the latter. World Heart recycles pig waste and also produces environmentally efficient mobile toilets. Kosdo has a shower head that uses about half the water of a conventional model and is currently being sold in a number of countries.

All the enterprises had intriguing products with reasonable if not excellent growth potential. Okay, there was one company that presented a miracle water that could not only make crop yields better, but improve the survival and growth rate of farm animals. And oh yes, it also allegedly cures cancer. Without meaning to sound skeptical, we’ll wait for the late-night infomercial on that one.

Back in 2007, Warren Buffett suggested that the South Korean stock market had 10 good years ahead of it. Though it has used up some of those and market valuations have changed, this exceedingly industrious country wants to do business. Investors might want to look there, especially after the next market and currency swoon that will inevitably occur.