SKAGEN’s Head of ESG Sondre Myge and I recently went on a tour of three emerging Asian markets, South Korea, Vietnam, and India. The purpose of the trip was to learn, engage and share knowledge with portfolio and non-portfolio companies, government officials and other shareholders. Our main focus was ESG matters, but we were also able to spend some time discussing financial and operational issues with the companies.
We touched down in Seoul, South Korea, where a gloomy drizzle set the scene. The Korean population is aging rapidly, with a quarter of the population passing 65 by 2030. The fertility rate is already the lowest in the world at just 0.72 per woman in 2023, and is projected to decline further. In addition, it is not hard to imagine how the 2000 missiles pointed at Seoul from just 20 kilometres away in North Korea must significantly diminish one’s sense of safety and well-being.
The Korean economy is dominated by large family-controlled conglomerates, called chaebols. The structure of the chaebols is seen as an impediment to growth, both in terms of size and corporate structure. As a result, corporate governance currently defines the zeitgeist of Korean financial markets, with SKAGEN-backed activist investors having called for measures to reduce the so-called “Korea discount”. In light of this, we discussed topics such as dividend policy, share buybacks and share cancellation, as well as cross shareholdings with the companies we met with.
The combination of low GDP growth, high energy dependency, Chaebol control, the ever-looming threat from their northern neighbour and a quickly aging population seems to dampen the general societal mood. Despite this, the people we met with were welcoming, well-prepared and positive – and good at having fun.
The first day was spent with the main companies within the LG group: LG Chem, LG Electronics and the LG Corporation. We were given insight into the group’s technological innovations in areas from batteries, robotics and transparent and bendable OLED screens, to biodegradable “plastic” based on sugar cane and corn, as well as pharmaceutical innovations. Additionally, we discussed ESG strategies, as well as their take on the “value up” initiative, which they see as being somewhat politically motivated ahead of Korea’s upcoming election.
The second day was spent with SKAGEN portfolio companies Hyundai Mobis and Samsung Electronics. At Samsung we were, amongst other things, given an exciting demonstration of the world’s first AI smartphone, with text and image creation on the phone. Further, we met with KB Financial, South Korea’s largest bank and the National Pension Service, the third largest pension fund in the world. Both KB and the NPS detailed using Japan as a benchmark for “value up” strategies.
Our Korea visit also included talks with investment bank Samsung Securities, as well as Minister Council Joon Grane Hetland at the Norwegian Embassy.
Positive on Vietnam
Next, we set our sights on Vietnam and Ho Chi Mihn City, where the warm weather reflected the sunny disposition in the Vietnamese economy. Vietnam benefits from several factors which position the country well for growth; its growing population, its position as one of few Asian countries able to navigate both the US and China successfully, as well as a government that is gradually opening the country to foreign investments. Additionally, Vietnam has ample renewable energy and together with massive investments in solar and wind, renewable sources now cover around 50 percent of energy consumption.
Our agenda in Vietnam was put together by Dragon Capital, an asset manager with a sole focus on Vietnam. SKAGEN has been a top ten investor in their closed-end Vietnam Enterprise Investments Ltd (VEIL) fund for more than a decade.
Our first meeting was with the largest diary company in Vietnam, Vina Milk. They presented their largest manufacturing site, where milk is loaded, processed, packaged, and warehoused. 140 000 cows, of which 40 000 are owned by Vina Milk, are regularly massaged and showered. Chips in their ears show their overall well-being and store data that may be further processed using AI or machine learning in the future. The factory was modern, with 70% of energy sourced from renewables.
We then went on to industrial park developer Fraser Development. They develop production sites with adjacent housing, hospitals, schools and other infrastructure as needed, and lease these facilities to companies looking to establish or grow their production footprint in Vietnam.
Following this, we met with property developer Phadat. Phadat’s typical model consists of purchasing land that has not yet been zoned in order to develop, build and sell. Our visit to Phadat highlighted how relationships are key to succeeding and progressing within this sector in Vietnam. The Chairman and the CEO were open and even proud to share how relationships with government officials down to local officials are the key to quick and successful zoning and development. A reminder maybe, that the definition of corruption can vary from country to country.
Our final meeting was with Duc Giang Chemicals, that mines phosphorous ore material. They further process the ore to yellow phosphorous which is used in a series of chemical products from phosphoric acid to detergents. The production produces a large amount of phosphorus sludge that is discharged into the environment, causing pollution. We learned about the company’s efforts to reduce environmental damage through creating a circular value chain minimizing waste.
We left Vietnam feeling positive and confident for the future of the country and the prosperity of the economy – and we certainly left positive and confident about our clients’ investments in Vietnam.
In and out of India
The final destination of our journey was India. Our purpose was to visit UPL, a global agriculture chemical producer and one of the largest crop protection companies in the world. We spent around 24 hours in India, of which 17 were spent travelling with representatives of UPL, having meetings, and enjoying a site visit. UPL has 14 production sites in India and we visited one located in Bharuch in Gujarat province, a 4 hour train ride from Mumbai.
Consisting mostly of pipes, vats and storage units interlinked over acres of land, chemical factories all look the same to the layman. What did strike us was the focus on safety, the cleanliness of the grounds, the egalitarian treatment of all 4000 employees and contractors and the integration of green spaces around the factory buildings.
Overall, visiting South Korea, Vietnam and India, we were able to familiarise ourselves with three very different countries in the space of a very short time, revealing contrasting aspects important for investors.