# 658 – 🇰🇷 Korea’s discount problem – The Average Joe
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    # 658 – 🇰🇷 Korea’s discount problem

    victorlei

    March 22, 2024

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    Good morning. In the world of luxury, Hermès’ ($HESAY) Birkin bags stand out as some of the priciest items around. Owning one can set you back tens of thousands of dollars, with higher-end versions fetching millions on the resale market. But having the cash doesn’t necessarily secure a spot on the buyer list.

    There’s a widely rumored belief that customers need to spend a hefty sum in other Hermès categories before they’re even considered for the waiting list to buy these bags — though Hermès denied this last year.

    However, there might be another way to jump the hurdles. Two shoppers from California are suing Hermès, claiming the company violated US antitrust laws. But it could also be a one-way ticket to the banned-for-life list.


    GLOBAL

    South Korea Is At The Forefront of AI, EVs, and Biotech — But Its Stock Market Valuation Lags the Rest of the Industrial World

    When South Korea isn’t dealing with troublesome neighbors, low birth rates, and high cost of living, it’s figuring out ways to turn its underperforming stock market around.

    Despite being home to valuable companies on the cutting edge of artificial intelligence (AI), electric vehicles (EVs), and biotech, the world’s 13th largest economy doesn’t get the same investor appreciation as other industrialized countries like Taiwan or Japan.

    It’s called the Korea Discount… and in this case, the discount isn’t a good thing. It refers to the way that South Korean firms (i.e., Samsung, SK Inc., and LG) trade at significantly lower valuations compared to global competitors. The discount hinders economic growth, makes it tough for companies to raise capital, and makes the country’s stock market unattractive to investors. But the discount has surprisingly historical roots.

    • Many South Korean conglomerates are controlled by family “wealth cliques” known as chaebols, which exert extreme influence over companies’ boards and management — controlling hundreds of companies and boasting deep government connections.

    • Critics argue that chaebols deliberately keep Korean share prices “artificially low” at the expense of minority shareholders to avoid Korea’s sky-high inheritance taxes, with few measures in place to stop them.

    Closing the gap

    South Korea aims to tackle these issues by reducing inheritance taxes and implementing market reforms to protect minority shareholders and encourage companies to prioritize returns and governance. Investors are skeptical, but even a small improvement could yield billions in new market value.

    • Eliminating the gap could significantly increase company values, as many South Korean companies currently trade below their book value.

    • For instance, if the Korea Discount were eliminated, Samsung Electronics’ valuation (South Korea’s most valuable company) would double if it matched the book value of its US competitor Micron ($MU).

    Will it work? It did for Japan, whose stock market struggled for decades until the government initiated corporate reforms in 2013. It took almost 10 years, but Japan’s economy is now on fire — rising nearly 50% in the past year, surpassing the S&P 500. South Korea seems to be following a similar path, with Goldman Sachs predicting one of the highest earnings growth rates globally this year — projecting a 54% increase in 2024 and 20% the following year.


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    • Winner of iF Design and Top 100 Product awards

    • Featured in TechCrunch, Wired, The Guardian, and more

    Most importantly, Eli has already attracted hundreds of customers across The Netherlands, Portugal, Italy, and more. Plus, Avis – yes, the car rental leader – is also adopting Eli’s vehicles for their fleets.

    Their next move is to tackle the US market later this year, harnessing a production capacity of 4,000+ vehicles annually.

    Invest in Eli on their journey to dominate the $470B micro-EV industry.


    LARGECAP RECAP

    🚗 Biden’s EPA announces strictest emission standards ever

    As the demand for electric vehicles (EVs) continues to accelerate, the automotive landscape is witnessing a remarkable transformation towards cleaner and greener transportation solutions. Yesterday, the Environmental Protection Agency (EPA) announced strict new tailpipe emission standards aimed at curbing greenhouse gas emissions and air pollution from motor vehicles. According to Consumer Reports’ Chris Harto, this move is hailed as “one of the biggest pieces of climate regulation in history.”

    • Automakers will reduce the amount of carbon dioxide emitted by vehicles, which the EPA estimates will result in nearly 50% less emissions by the time the rules come into effect in 2026.

    • The regulations apply to fleets, allowing automakers to continue selling high-emission vehicles while requiring them to offset these sales with more eco-friendly hybrid and EV options.

    “Made in America” faces its match: The EPA anticipates that the new standards will drive an increase in electric and hybrid vehicle sales, potentially reaching up to 56% of vehicles sold by 2032 being electric. President Joe Biden says that American workers will “lead the world” in manufacturing these new cars, but they’ll face stiff competition from more affordable international competitors seeking to make inroads in the US — even if tariffs and the absence of EV credits present an obstacle.

    🔨 The Justice Department brings down the hammer on Apple

    After nearly five years of investigation, the Department of Justice (DoJ) is finally taking Apple to court over alleged anti-competitive practices. Joined by 16 state attorney generals, the DoJ finally sued Apple, accusing the company of violating antitrust laws. They claim Apple’s actions have prevented users from switching to competitors, resulting in “higher prices and less innovations for users and developers.”

    • The government contends that Apple “chooses to make its products worse for consumers to prevent competition from emerging.”

    • The lawsuit cited Apple blocking messaging between rival platforms, restricting the functionality of competing smartwatches, and hindering developers from creating apps that could compete with its digital wallet.

    Be scared, just not for this: While the case outcome could have severe consequences for Apple, similar to the impact on Microsoft in 1998, the legal battle is likely to drag on for several years. After all, it’s only the third time in 14 years that the DOJ has sued Apple. However, Apple’s potential downfall may not solely hinge on this lawsuit but also on several strategic mistakes, a slow entry into AI, and a misplaced focus.


    JOE’S MARKET PULSE

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    Markets & Economy

    Reddit ($RDDT) is officially public: But that doesn’t mean you should rush to buy. After being priced at the top of the company’s price range on Wednesday, the social media company’s stock rallied 38% higher to open at $47. [Read]

    Gas prices rev up in another worrying sign for inflation: For the first time since last year, gas prices are higher year-over-year — averaging $3.527 per gallon across the US on Thursday. It’s partly seasonal as oil refineries close for annual maintenance, but also from drone attacks on Russian refineries. [Read]

    US home sales ripped higher in February: The housing market is healing with rate cuts in sight, sellers ditching their locked-in low rates, and more housing supply coming to market. Last month, the median sales price jumped 5.7% to $384.5K — the highest for February in history. [Read]

    Business & Wealth

    Apollo ($APO) bids $11B for Paramount’s film and TV biz: That’s almost $3B more than Paramount’s ($PARA) entire market cap. Guess Apollo didn’t watch the recent Quiet on Set docuseries, which exposed alleged sexual misconduct inside Paramount-owned Nickelodeon. [Read]

    Glassdoor freaks users out by adding names to profiles: The workplace review platform, known for its anonymity, began collecting and adding names to user profiles without consent. And many users aren’t even sure how Glassdoor even got their names. [Read]

    US worker productivity hits record high: And surprisingly, it’s not because of AI. Despite vast layoffs in white-collar industries, US workers are getting better at their jobs, which could boost returns for American firms. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    Austin’s Pandemic Charm Is Fading, With Home Prices Down 11% Amid A City Exodus

    Americans are starting to make the Lone Star state feel more lonely. During the pandemic, Austin, Texas, was a hotspot due to ‘lax COVID restrictions, lower living costs, and tempting home prices — becoming the envy of sunshine-starved Californians and New Yorkers. Between 2019 and 2023, Austin’s rent prices rose 25.5%, while home prices skyrocketed by 55.6%. But as quickly as it boomed, its growth now appears to be slowing down.

    • Since 2022, Austin’s rents and home prices have declined 7% and 11%, respectively, according to Apartment List and the Freddie Mac House Price Index.

    • Last year, Redfin reported that more residents were looking to leave Austin than those looking to move in.

    So what’s behind this exodus? Although Texas cities have represented nearly a quarter of the new jobs created in the Sun Belt during the pandemic, many tech transplants are now leaving Austin behind, citing cultural and political differences, city infrastructure, and better opportunities elsewhere. Some are even returning to offices in cities like San Francisco and New York, which might have locals breathing a sigh of relief as they head for the door.


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