Foreign Investors Should Consider Korea’s Political Uncertainties

For the first time after the financial crisis, a foreign securities firm released a report noting that Korea’s political circumstances should be considered when investing in Korea.

The likelihood of the government’s economic involvement is growing due to reasons such as the economic downturn. Its focus on ideal redistribution of wealth will not increase consumption, confidence, and the chaebol’s facility investments, according to an investment report on Korea on Wednesday by CLSA, the Asian arm of the French investment bank Credit Lyonnais Securities.

The report added that investors should no longer overlook political challenges in Korea for the first time since the financial crisis.

With regard to the Korea Fair Trade Commission’s recent cartel probe at oil refineries, CLSA analysts pointed out that the Korean government is trying to appease consumers’ anger by undermining shareholders’ interests rather than by cutting extremely high gasoline taxes.

Investors cannot be certain about the Korean government’s growing anti-labor sentiment until it takes specific actions to control the militant labor unions, criticized the report.

The call rate cut by the Bank of Korea (BOK) was the right move at a time when aggressive stimulus package is needed, the report noted, while it’s unclear if the BOK would be able to further cut the rate given the inflationary pressures.

Chang-Won Kim changkim@donga.com