In May 1996, FIFA surprisingly awarded the 2002 World Cup to South Korea and Japan ' two countries w...
In May 1996, FIFA surprisingly awarded the 2002 World Cup to South Korea and Japan ' two countries with little history of positive co-operation. At the time both stock markets were near five-year highs and both economies appeared relatively buoyant. However, both were about to suffer from the Asian crisis of 1997 ' compounded in Japan by a mistimed increase in consumption tax.
In the lead up to the actual tournament, Korean stocks are now virtually unchanged from their 1996 levels after their sharp collapse during the crisis. Many lessons were learnt from the depths of 97/98 and, in particular, companies in Korea now have a healthy regard for shareholders and have much better capital discipline. Corporate governance in Korea has also improved dramatically.
In the meantime, Japan has stumbled from one crisis to another, while somehow avoiding a complete meltdown.
Shares have fallen 35% since 1996. In the last four months alone, 15 listed companies have gone bankrupt with total liabilities of nearly $10bn ' and there are many more to come. The banks continue to report massive losses as bad debts overwhelm their limited profit-making ability. Even Prime Minister Koizumi, the much-vaunted reformer, appears to have lost his appeal in the midst of an 18-month downturn.
World Cup stadium expenditure highlights the key differences between the countries. South Korea, reflecting its improved accountability and focus on the bottom line, has only spent $2bn versus Japan's rather bloated US$10.7bn. Even at a macro level, Korea has massively outperformed Japan, growing an average 5% in the past six years versus Japan's more modest 1%. Even in 2002, Japan's economy will be stagnant with no growth expected while Korea is expected to grow over 5%.
Korean companies are also increasingly overtaking their Japanese counterparts. Samsung Electronics and Sony now have similar market caps of about $50bn. There the similarities end though ' Samsung is now number three in mobile handsets globally, number one in DRAMs, and number one in TFT LCDs, and is trading on a P/E ratio of less than 10 times.
Sony is still one of the powerhouses of consumer electronics and through the Playstation 2 is the world's leading games console manufacturer but is trading on a P/E of approximately 70 times. For 2002, Samsung's operating profits are expected to be triple those in 1997, while over the same period, Sony's have fallen by over 50%.
For the first time, Japan urgently needs to take notice and learn from the lessons of its Korean neighbour. Aggressive restructuring is needed at a micro and a macro level. Deflation will continue in Japan for as long as a muddle-through policy is encouraged. Dramatic changes are needed ' tax cuts, nationalisation of more banks and a reform of the political system.
And finally, research from HSBC shows that in the past the host stock markets have outperformed ahead of the tournament, before selling off sharply afterwards. Both the Korean and Japanese markets are among the best-performing markets globally in 2002.
Japan and Korea among best performers.
Japan needs to learn from Korea.
Will Korea or Japan win a World Cup game?
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till