The U.S.’s oldest measure of the stock market has come to South Korea, underscoring the dominance of the family-owned conglomerates known as chaebols.
On Monday, South Korea’s main stock market operator Korea Exchange, known as KRX, launched the Korean Dow Jones Index, an index dubbed the KTOP 30 that is meant to mimic the Dow Jones Industrial Average. Like the Dow for the U.S., the KTOP 30’s constituents are handpicked to represent the Korean economy and stock market, according to a release from the exchange.
If so, you can sum up half the Korean economy in two words: Samsung and Hyundai 005380.SE -0.01%.
Of the 30 companies, no fewer than seven constituents are part of the Samsung conglomerate: smartphone maker Samsung Electronics Co., shipbuilder Samsung Heavy Industries Co.010140.SE -1.67%, construction company Samsung C&T Corp.000830.SE 0.00%, insurers Samsung Life Insurance Co.032830.SE +1.95% andSamsung Fire & Marine Insurance Co.000810.SE +0.52%, battery maker Samsung SDI Co.006400.SE 0.00% and electronic component maker Samsung Electro-Mechanics Co.009150.SE 0.00%
The Samsung count jumps to eight if you include KTOP 30 member E-Mart Co., a discount retailer that is also tied to the Samsung conglomerate’s controlling Lee family.
The Hyundai group is no slouch, either, with seven companies of its own on the index: automaker Hyundai Motor Co. and affiliate Kia Motors Corp.000270.SE +0.49%, auto parts maker Hyundai Mobis Co., logistics company Hyundai Glovis Co., steelmaker Hyundai Steel Co., builder Hyundai Engineering & Construction Co. and shipbuilder Hyundai Heavy Industries Co.
The SK conglomerate boasts three KTOP 30 constituents, while LG has three of its own, bringing up the representation of the country’s four biggest chaebols to 70% of the index.
The index’s backers, which in addition to KRX include South Korea’s Financial Services Commission and Dow owner and operator S&P Dow Jones Indices, a unit of McGraw Hill Financial Inc.MHFI +2.25%, are pitching the new index as a way to drive excitement in the South Korean stock market, where participation by individual investors has fallen to a historic low, according to KRX.
Back in the U.S., the Dow is already regarded as something of a relic. Founded in 1896 by Charles Dow, it is perhaps the only major global stock index that gives weight to stocks based on share price rather than market capitalization, like the more widely-adopted S&P 500-stock index.
As a result, moves in the Dow can sometimes be erratic, since some stocks — likeGoldman Sachs Group Inc.GS +1.16% and 3M Co. — just happen to have a higher stock price, and therefore more influence on the index. As a result, only a handful of exchange-traded funds and a smattering of fund managers actively benchmark performance to the Dow.
No matter. In an unusual move for South Korea’s stock market operator, the KTOP 30 adopts the Dow’s method of giving companies more or less weight depending on a company’s stock price — not its market capitalization. That means that Samsung Electronics Inc., which finished trading last week at 1,259,000 Korean won ($1,112) per share, will have more than five times as much influence in the index as Hyundai Motor Co., whose shares finished last week at 124,000 won.
(Samsung Electronics’ influence would be even greater, except that KTOP 30′s makers decided to cut the company’s price weighting in half.)
Cosmetic maker Amorepacific Corp.090430.SE +4.19%, meantime, will have a significantly diminished influence as a result of its decision earlier this year to execute a 10-for-one share split.
According to KRX, using a price-weighted system will allow the KTOP 30 to rise more quickly than the current market cap-weighted benchmark, the KOSPI Composite Index, which hasn’t really moved in the past five years. A sustained surge in the KTOP 30’s stock prices, the exchange believes, will “revitalize” the market by attracting more punters.
The components of the Dow are chosen by a special index committee, which includes editors of The Wall Street Journal, which is published by Dow Jones & Co., a part ofNews Corp NWS.AU +0.49%. Similarly, the KTOP 30 components were chosen by a nine-member index committee composed of academics and institutional investors “who have both expertise and morality,” according to KRX.
No comments:
Post a Comment