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PlanMaestro
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Are you sure it's because of North Korea?

 

You have to be sensitive to the fact that China's currently on a building spree/bubble, so a lot Korean industrials (Posco) are having inflated sales as a result. Any pull back in their valuations will need to be analyzed from that context.

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Are you sure it's because of North Korea?

 

You have to be sensitive to the fact that China's currently on a building spree/bubble, so a lot Korean industrials (Posco) are having inflated sales as a result. Any pull back in their valuations will need to be analyzed from that context.

 

Agree that is an important factor to consider in the specifics.

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Posco is selling at a discount to replacement cost & a P/E of 7.  I don't have a strong opinion of if it has bottomed or not but it is definitely cheap.  In the long term a crash in steel prices would be good for Posco as it's competitors would be hurt worse.  This is a tough one to time though.  The dividend makes it easier to stomach maybe.

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Posco is selling at a discount to replacement cost & a P/E of 7.  I don't have a strong opinion of if it has bottomed or not but it is definitely cheap.  In the long term a crash in steel prices would be good for Posco as it's competitors would be hurt worse.  This is a tough one to time though.  The dividend makes it easier to stomach maybe.

 

I don't think a simplistic approach like P/E is really good enough to determine whether or not Posco is cheap.

 

Steel is a cyclical industry, looking at trailing earnings can be pretty dangerous because earnings might be ready to fall off of a cliff. A good example of this was with the US homebuilders which looked cheap on a valuations basis in 2005/2006 but were actually monstrously overvalued.

 

I think the right way to look at it would be first, to see what a contraction of Chinese steel imports would do to Posco's volumes. In some years 30% of their exports have gone to China, so you've got to watch out for that, plus you've got to see if steel is being shipped to another country where it eventually ends up in China (as part of a supply chain/intermediate production). At that point you can stress test volumes for what happens if/when China steel consumption really contracts.

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That's fair Tariq.  I was just pointing out a high level overview of the attractive attributes.  On an assets basis do you not agree it is cheap?  I view replacement value as kind of a floor on realized loss if you have a long time span.

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Is there a morningstar/valueline type service for Kospi financials?

 

Regarding China, Michael Pettis has been offering cautionaries since at least the beginning of the 00s: http://www.mpettis.com/2012/04/09/the-ways-china-can-rebalance/

 

To try to work out what these options might be I will begin with two key assumptions. The first is that the fundamental imbalance in China is the very low GDP share of consumption. This low GDP share of consumption, I have always argued, reflects a growth model that systematically forces up the savings rate largely by repressing consumption, which it does by effectively transferring wealth from the household sector (in the form, among others, of very low interest rates, an undervalued currency, and relatively slow wage growth) in order to subsidize and generate rapid GDP growth.

[/size]As a consequence of this consumption-repressing growth model, Chinese growth is driven largely by the need to keep investment levels extraordinarily high.

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Speaking of, Chan Lee, from Petra Capital Management presented four ideas at the most recent Value Investors Congress: http://www.marketfolly.com/2012/05/chan-lee-on-korea-as-goldmine-of-ideas.html

 

The Samsung Climate Control and Pangrim investor relations pages are entirely in korean.

 

The Petra Capital newsroom contains more than one article with a skeptical view towards chinese fixed capital spend ("China's Investment Boom" from 11/2009): http://www.petracm.com/abo_9

 

 

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