What is a Cryptocurrency?

Cryptocurrencies are internet-based, digital mediums of exchange. They use blockchain technology to conduct financial transactions and store wealth. They are gaining in popularity due to their decentralized, transparent and immutable characteristics. Decentralization is key: neither governments nor central banks control them. Governments are using digitalization to enact greater powers and limit fiscal privacy, driving demand for alternative forms of money. Transferring cryptocurrencies between two parties involves much lower transaction costs than fiat currencies. Banks and payment processors charge relatively steep fees.

Cryptocurrencies get their name from cryptography, the art of writing and solving codes. It is a practice that precedes digitalization and the internet. It includes any technique for transmitting information securely. “Crypt” refers to a vault. The suffix “graphy” refers to writing or an area of study.

What is an ICO?

And ICO is an Initial Coin Offering. It is similar to an IPO (Initial Public Offering). Both are used to raise capital. However, there are several differences. With an IPO, investors buy shares of ownership in a company. ICO projects also raise funds, but do not represent ownership in a company. Rather, investors receive digital tokens that they hope will grow in value as they expand in use.

The plus side is that ICOs, used properly, are an effective new form of venture capital. The costs are lower than an IPO. The reach is broader and more investors have the opportunity to participate. The downside is that this is a new and unregulated market, providing room for fraud. This can mean an outright scam, or a simple matter of the underlying interest being over-valued.

What Defines an Alternative Investment?

Alternative investments are anything other than stocks, bonds and cash. These assets make up the majority of Global Asset Management portfolios. By broad definition, this would include real estate and derivatives, although some would say these are mainstream assets in this day and age. Examples include hedge funds, private equity, and tangible assets like gold bullion, art and even vintage wines. They tend to be illiquid, unregulated and higher risk. They offer benefits of diversification, exoticism, and the potential for higher returns. Diamonds and gold coins have long been valued for their portability as well as their value as a store of wealth.

Many view real estate and gold as protection against inflation. They gain in value when inflation and economic risk rise, and currencies depreciate. Cryptocurrencies are a new form of alternative investment. As with all new markets, they are unregulated. Investors must be vigilant to avoid being scammed.

South Korea’s Importance

Based on the total volume of Bitcoins bought and sold, South Korea is the third largest market after Japan and the United States. This gives a relatively small country enormous influence on cryptocurrency prices. According to the Korea Blockchain Industry Association, the country hosts at least twelve cryptocurrency exchanges.

The government is supportive of the blockchain industry and permits trading on regulated cryptocurrency exchanges. Cindicator reports that South Korea makes up 30% of global trading. Koreans have long been early adopters of new technology. The larger exchanges there are partnering with local platforms in several industries to expand cryptocurrency as a means of payment.

Cryptocurrencies gain in value the more they are used. For this reason, Seoul has become a major influence on Bitcoin and other markets. At 87%, the country has the largest general awareness of this new asset.

Popular Cryptocurrencies

The first unit of Bitcoin was created in 2009, and to this day it remains the most popular. There are thousands of different cryptocurrencies in existence, but they need to be circulated to gain traction. Most won’t. Five dominate the market. Investors should stick with these.

Bitcoin (BTC)

Bitcoin has the largest market capitalization by far. It is also the most expensive. The size and strength of its blockchain make it impervious to scams. For investors wanting exposure to cryptocurrencies, Bitcoin is a popular choice.

Ethereum (ETH)

The Ethereum blockchain structure is similar to Bitcoin’s. It’s unit of currency is the Ether token. Ethereum is a platform that has uses beyond buying and selling Ether. It’s popular for smart contracts. These act as an arms-length third-party in the digital world, much like a lawyer’s trust account in real estate transactions. Smart contracts ensure agreed upon conditions are met before digital payments are released.

Ripple (XRP)

The fastest cryptocurrency platform is Ripple. It processes transactions in mere seconds, compared to Bitcoin which takes minutes. It may one day replace the SWIFT system. This won’t happen overnight – the banking system needs to feel secure and protected against any potential for fraud. The market is still the wild west.

Litecoin (LTC)

Litecoin is similar to Bitcoin. While Bitcoin retains its gold standard status, Litecoin has several benefits. It’s faster, with a transaction time of 2 ½ minutes compared to 10 minutes for BTC, and there are four times as many Litecoins in circulation. Third, the algorithm is less complex, making LTCs less expensive to create.

Bitcoin Cash (BCH)

BCH was created to improve upon Bitcoin’s transaction speed. Bitcoin Cash increased its block size, which allows all details to be verified at once, speeding up transactions. Its purpose is to reduce transaction costs and increase the amount of transactions that can be processed, one day competing with PayPal and Visa.

Bottom Line

The world of cryptocurrencies includes both alternative investments and scams. Stick with those that have large market capitalizations, established transaction histories and that may be useful for other purposes. For all investment questions, contact your Investment Advisor at Global Asset Management.

Global Asset Management blog – Seoul, South Korea

According to World Bank data, South Korea ranked 24th for overall GDP last year. GDP, of course, is a measure of a country’s economic strength. Their GDP grew from $901.9 billion in 2009 to $1.72 trillion in 2018, an increase of almost 91%. It’s projected to reach $1.99 trillion by 2024. In terms of where the economy stands per person, GDP/capital has grown from $19,138 in 2009 to $33,320 in 2018. The country ranks 30th globally in per capita income.

Why South Korea?

Inflation has remained low following rate cuts by the Bank of Korea in Seoul. Ongoing low rates will have a simulative effect, which is bullish for South Korean stocks. Low interest rates will lead to a weakening of the South Korean won against the U.S. dollar, Euro and other major currencies. This makes their exports more competitive in the global marketplace, further boosting their economy.

Global Asset Management analysts are optimistic about a trade resolution between China and the United States. Investors share our opinion, and this optimism is providing strength to Asian markets, including the KOSPI. The index is trading higher from gains in technology, industrial and financial sectors.

Investor Trade-Offs

The Korean economy has been attractive for international investors for some time. It boasts a combination of rapid growth rates and stability. As with everything, there are trade-offs. Individual investors should always weigh risks against rewards.

Benefits:

• Stable, developed economy: member of G20 and OECD (Organization for Economic Cooperation and Development). Considered an advanced nation.
• Per capita income surpassed $30,000 for the first time last year to reach $31,349 (2018), according to The Korea Times.

Risks:

• Geopolitical: next door to North Korea. While relations between the two countries are improving, North Korea is highly militarized and considered unstable.
• Export Reliant: South Korea is taking the correct steps toward responsible growth but they are heavily reliant on exports, making them vulnerable to global economic contractions.

South Korean ETFs

ETFs are exchange traded funds. They are closed-end mutual funds that trade on the stock exchange. They’re an excellent vehicle for global investments since they offer diversification and professional money-management. ETFs are also more liquid and have lower management fees than closed-end specialty mutual funds. South Korean ETFs include shares of South Korean companies, securities listed in the KOSPI (the Korea Composite Stock Price Index) and possibly South Korean debt instruments (government and/or corporate fixed income products).

The most popular South Korean ETF is the iShares MSCI South Korea Index Fund (NYSE: EWY). The $4.3 billion fund trades on the New York Stock Exchange. Its average daily trading volume is 3,026,785, making it the largest and most liquid of the Korean ETFs. It has a 0.59% management fee. The fund tracks the MSCI Korea 25/20 Index, which is a weighted average of large- and mid-cap stocks trading on the Korea Exchange. It is top-heavy with ten holdings making up half the assets under management. Samsung Electronics accounts for 20%. Other dominant positions include shares in POSCO, Hyundai and LG Chemical.

Other South Korean ETFs:

• Franklin FTSE South Korea ETF (NYSE: FLKR)
• First Trust South Korea AlphaDEX Fund (NASDAQ: FKO)
• HSBC MSCI Korea UCITS ETF (LSE: HKOR)

South Korea ADRs

ADRs are American Depository Receipts. They represent ownership in shares of foreign companies. ADRs are not as liquid as other stocks trading on the major exchanges. Examples include:

• LG Display Co., Ltd. (NYSE: LPL)
• SK Telecom Co., Ltd. (NYSE: SKM)
• KB Financial Group Inc. (NYSE: KB)

Final Words

• Investor interest in South Korea is increasing due to steady economic growth, and membership in both the G20 and the OECD
• The best way for investors to participate in South Korea is through ADRs and ETFs, both of which trade on U.S., London and European stock exchanges
• Overall, South Korea has many investment-related benefits. However, potential investors must consider the geopolitical and other risks in relation to their overall investment goals and temperament.

Global Asset Management is a private investment firm located in Seoul, South Korea. Individual investment recommendations should be discussed with a GAM investment advisor, to ensure suitability.

Check out more on our Global Asset Management South Korea blog.

There are many reasons why Seoul, South Korea is a great location to do business.

Global Asset Management finds many advantages being based there.

In addition to having the world’s fastest internet speeds, they have one of the highest-educated workforces anywhere.

Student math and science scores are second only to Singapore, and they have a high literacy – over 95%.

Most people speak English.

Most importantly, the cultural attributes that have made the country an economic success also support GAM’s success.

Read more: What is Global Asset Management?

FAST FACTS

• Official Name: Republic of Korea (ROK)
• ROK: Han’guk – shortform of Taehan-min’guk
• Language: Korean (Hangul) is official language. Most people speak English.
• Government: Presidential Republic
• Population: 2019 estimate 51,709,098 (27^th largest in the world by population)
• Geographic Size: 100,210 km²
• Capital City: Seoul, 10 million inhabitants
• Second Largest City: Busan, major port
• Economy: 11^th largest economy by GDP.
• Life Expectancy: 3rd highest in the world, credited to high quality healthcare
• Local Landmark: Lotte World Tower in Seoul is 5^th highest building in the world
• Ethnicity: 96% ethnic Koreans (one of the most ethnically homogeneous societies)

ECONOMY

South Korea is one of the 20th Century’s great economic success stories, growing from one of the poorest countries in the world into a member of the G20 with a GDP in excess of one trillion dollars.

Modern history begins following the 1950-1953 war with North Korea.

People were encouraged to save and invest, rather than consume, and the government directed resources towards export-oriented industries.

Confucian values, that still dominate the culture, made this possible.

There is an ethic of hard work and living a simple life.

This combination led to South Korea having the fastest growing middle class in the world for several decades.

Read more: Wealth Manager Explained

SOUTH KOREAN TIGER

Today, they are considered one of the four Asian Tiger Countries, along with Singapore, Hong Kong and Taiwan.

The Asian Tigers are high-growth economies fueled by rapid industrialization and exports.

As a group, they have enjoyed steady economic growth since the mid-1960s and now rank among the wealthiest countries.

South Korea and Taiwan evolved as essential manufacturing hubs for electronic parts, information technology and automobiles.

Singapore and Hong Kong grew into worldwide financial centers.

IMPORTS/EXPORTS

Today, South Korea boats the 11th largest global economy by nominal GDP.

South Korea’s main trading partners are China, the United States, Japan and Germany.

Major conglomerates include Samsung, LG Electronics, Hyundai and the Lotte Group.

Main exports are to China (25.1%), the United States (12.2%), Vietnam (8.2%), Hong Kong (6.9%) and Japan (4.7%).

hese include semiconductors, petrochemicals, wireless communication equipment, cars and auto parts, flat displays, ships and steel.

Imports come from China (20.5%), Japan (11.5%), the United States (10.5%), Germany (4.2%) and Saudi Arabia (4.1%).

The largest commodity imports are crude oil & petroleum products, natural gas, coal and steel.

Manufactured goods include semiconductors, computers, wireless communication equipment, automobiles, textiles and chemicals.

CONFUCIAN INFLUENCE

Modern Confucianism in South Korea is more a template for society than a religion.

Korean Confucianism is a major influence and a fundamental part of society.

The values imbued contribute to a great workforce, a growing economy and a stable social order.

Respect for education is a vital part of South Korean culture; the emphasis is placed on an ability to study and to memorize.

The focus on family and the group over the individual, along with respect for elders, translates into a people that thrive in a corporate structure.

CONFUCIOUS AT WORK

Confucianism supports group harmony, hierarchies and traditions.

Maintaining ‘kibun’ (face, honor and personal dignity) is important.

Businesses built on Confucian ethics instill harmonious relationships among workers and company loyalty.

Punctuality is highly valued and an essential sign of respect.

Efficient and time-oriented workers make decisions and complete tasks quickly.

Western societies focus on diversity and inclusion.

Korean culture focuses on a sense of belonging.

This involves developing deeper personal connections and harmonious relationships.

The corporate culture focuses on what employees have in common, rather on what their differences are.

NUNCHI

“Nunchi” literally translates to “eye-measure”.

It is close to the western notion of emotional intelligence.

Nunchi is the art of sensing what people are thinking and feeling in order to respond appropriately.

It’s been described as “speed-reading a room with the emphasis on the collective, not on specific individuals”.

This Korean concept was introduced 2,500 years ago as a teaching of Confucius and is credited with the modern economic miracle.

On a global scale, Nunchi explains the country’s ability to determine the needs of other countries, to manufacture exports to meet those needs and to continually adjust as those needs change.

This awareness also helps people function well in the workplace.

It gives Global Asset Management local staff a special ability to work with both a diverse expatriate staff and a global clientele.

It brings harmony to the GAM Seoul office.

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