“Even though the national bankruptcy has started, the government has not taken any action. Incompetent or ignorant! I’m going to invest in that incompetence and ignorance.”
Here, a well-dressed young man gathers people and gives a Japanese speech. He claims that the Republic of Korea will be destroyed within a week, and if you believe in yourself and invest, you can make a lot of money. Most of the people left and only two remained. They go around the bank and start buying ‘this’ whenever they can. It was US dollars.
The young man’s prediction came true. When the foreign exchange crisis hit, the stock market plummeted and the value of the money earned plummeted. Those who bought dollars more than doubled their profits in just one week. The next destination is a real estate agency. “There have been a lot of flats for sale recently, haven’t they? Collect them. If the price of a house drops another 10-15%, I’ll buy it all.”
“KRW/USD exchange rate should also open to 1,500 won.”
This is the story of Yoon Jeong-hak (Yoo Ah-in), a man who changed his ‘life and class’ by taking advantage of the foreign exchange crisis in the film ‘Day of Bankruptcy’ released in 2018. During the 1997 Asian financial crisis , the earned-dollar exchange rate reached a peak of 1962 per dollar. Considering the exchange rate before the IMF bailout was around 800 won, it was an alarming surge.
It is different from the crisis situation 20 years ago, but this year, the dollar-earning exchange rate has been rising out of control. On the 28th, the market was stunned by surpassing 1440 the dollar gained during the day. This is because the preference for the dollar, which is a safe asset, spreads as the global financial market becomes unstable as the US suddenly raises the benchmark interest rate. This is what is known as the “king dollar” phenomenon. Financial experts predict, “It’s only a matter of time before we break through 1,450 won per dollar, and we should keep the possibility of 1,500 won open.”
When a strong dollar comes, foreign investors sell stocks in emerging countries like Korea. This is because they are sitting and losing money on the exchange rate alone. The fact that Samsung Electronics’ stock price hit a new 52-week low every day and pushed back to the 50,000 won low is also largely due to the selling by foreigners. The share of foreigners in Samsung Electronics has recently fallen below 50%. Donghak Morgrug, who invested at the peak of ‘90,000 electrons’ early last year, is seeing a 40% loss.
‘King Dollar Shield’ Seohak Ant strong
On the other hand, the situation is slightly different for Seohak Morgrug who has invested in US stocks. Like the KOSPI, the Nasdaq Index is also adjusted 30% from last year’s peak, so what’s the difference? That is, foreign exchange gains from the strong dollar partially protect the share price from falling losses. “If you invest a certain percentage of foreign assets, you can avoid risk,” said Hong Chun-wook, an economist who emphasized dollar investment through books and YouTube.
Take, for example, Tesla stock, which has the largest share of investment in Seohak Ant. Tesla’s stock price peaked at $409.97 ($1229.91 before the stock split) on November 4, last year. The share price on the 29th (local time) was down 35% from its peak at $268.21. How about converting this to the Korean Won value? As of November 4, last year, the exchange rate was 1185.5 won per dollar (Hana Bank’s daily market price), which is about 486,000 won per Tesla. On the 29th, the exchange rate was 1,434 won to the dollar, which is about 385,000 won per week. Tesla’s loss was only 21% while winning. The ‘King Dollar’ managed to prevent a loss of 14 percentage points.
This is a worst case calculation. For long-term investors in Tesla, with a return of hundreds of percent, the current ‘high interest rate and high exchange rate’ environment may go beyond loss protection and become an asset ‘bargain’ opportunity. This is because housing prices are falling as the dollar-earned exchange rate and interest rates rise recently, as described in the film ‘Day of National Bankruptcy’.
If a Tesla investor buys a house now
Let’s take the case of Mr. A, an office worker in his 40s who lives in Jamsil, Seoul. Mr A has invested in Tesla stock since the end of June 2019. At that time, with an initial investment of 80 million won (exchange rate of 1,156 won/dollar), he bought 4,500 shares (at currently 300 shares based on two splits) at 15 dollars per share.
Mr A decided to invest in Tesla to buy his own house. He entered the Jamsil L apartment in Jamsil-dong in 2016 with 800 million won in deposit. At the time, the sale price of 33 pyeong (109-112 m²) was about 1 billion won. My wife suggested I should buy it with a loan, but Mr A thought, ‘One billion won for just one flat is nonsense.’ The price of ‘that’ house jumped by 800 million won in three years. The gap (the difference between the selling price and the jeonse), which was 200 million won, has widened to 1 billion won.
Mr. And disappointed, but she didn’t give up. Looking at Tesla’s future, I boldly bet extra money. After three years, Mr A Tesla’s yield is a whopping 1688% (based on the closing price of $268.21 on the 29th). The initial investment of $67,500 has grown to $1.2 million. With strong dollars, foreign exchange earnings are also tasty. Converted to Korean Won, that is 1.73 billion won. Mr. did not forget. for tax savings. When the valuation increased to 600 million won two years ago, I gave all Tesla stock to my wife to reduce capital gains tax (22% profit).
Currently, Mr. A plans to sell about 3,000 shares and realize 1.15 billion won in profit. I plan to buy a house in Jamsil L’s by paying 100 million won in transfer tax and add 1 billion won in Jeonse now. “Recently, the actual transaction price has dropped to 1.95 billion won. It’s down almost 30% from last year’s peak, so I think it’s an opportunity. If the real estate agency sells around 1.9 billion won, I think I will buy it.”
“Dollar Asset Holders, Home Buying Opportunities”
What would have happened if Mr. A sold Tesla stock at $400 ($1,200 before the split) near the previous high in November of last year and bought a house? Person A can secure a total of $1.8 million, KRW 2.133 billion (based on KRW 1,185 per dollar). That’s 4 billion more than sold now.
However, when the stock price peaked, house prices also peaked. In November last year, the actual transaction price of the 33 pyeong of Jamsil Ls was more than KRW 2.6 billion. 6 billion above the market price this month. If you sold stocks at the previous high and bought a house, you would have spent more money. Tax burdens such as stock transfer tax and house acquisition tax would also have been greater.
Park Jong-hoon, author of The Millennial Economy, said, “The economic crisis has given an opportunity as a bargain sale to those who have not been shaken by the crisis and have protected their assets to do it. In times of financial upheaval, success or failure depends on what kind of assets you have.
On the 26th, former Vice Minister of Strategy and Finance Kim Yong-beom was criticized by public opinion for accusing the people of ‘housing dollars’. Let me translate his words. “When I talk to people who know a little about economics, a lot of people say they made money by buying dollars. People who hoarded gold during the 1997 Asian financial crisis are busy buying dollars more ferociously than foreigners this time. The easy and limitless way for Koreans to bet on the weakness of their currency needs to be reconsidered. “
What is the implied meaning of this word? Who are the ‘people who made money by buying dollars’? In the final scene of the film ‘Day of National Bankruptcy’, Han Si-hyeon (Kim Hye-soo), the head of the Bank of Korea’s monetary policy team, reports as if speaking to the audience, “Crisis repeats its itself. In order not to be hit again, we must not forget. Constantly doubting and thinking. Don’t take the obvious for granted.”
▶ ‘Teslam goes’
The story behind Tesla, which will lead the ‘mobility revolution’ in the 2020s, will be revealed. Elon Musk, who is regarded as the best ‘visionary CEO’, is also under great scrutiny. Present news and issues from domestic and foreign Tesla YouTubers and Twitter users. Subscribe to the reporter page below to receive weekly articles.
By Baek Su-jeon, jerry@hankyung.com staff reporter
