Monday, April 25, 2011

Busan e-FM Week 25: Financial Trading in Korea

The english waves come inAbout 'Open Mike in Busan'


This week I’m going to talk about my job. I’m a financial trader, and I work for myself.


I read recently that seven out of ten Korean people regretted changing their jobs. Clearly there’s a lot of stress here connected with people’s working lives. It’s the same in England. In fact, there’s a word for it in English – we call it the “rat-race”, and it’s a race many people dream about dropping out of. There’s a book about trading by Alexander Elder, which begins with these words: “You can be free. You can live and work anywhere in the world. You can be independent from routine and not answer to anybody. This is the life of a successful trader.” It’s a good opening because it speaks to the dream of freedom and independence people have.

Job stress and the desire for a better life on fairer terms are big issues in modern society, and it’s part of the reason I quit my job working for a company. I think a lot of Korean people can understand the motivation. And as far as trading is concerned, it seems there’s quite a lot of it happening here.


I was both surprised and appalled to find out how much some Korean people were trading the financial markets. You know, I found out they call Korean traders ‘ants’, and I guess that sums all of us up. When I came to Korea in 2006 – before the Credit Crisis – everyone was talking about their investments, or their funds (‘pundue’), if they left the job to the bank. The percentage gains were enormous – I heard stories of people making 20-30% per year. This is scary... and unsustainable. They’re the kind of gains you usually see before a crash. But even before people lost so much money in the Credit Crisis – I saw TV stories here, and heard stories from my extended Korean social network, of people losing tens of thousands of dollars (or tens of millions of won) in the stock market.

Korean trading TV channels

You can tell it’s a serious business because of the dedicated Korean TV channels aimed at these ‘ants’. We don’t have those kind of TV channels in England. We have Bloomberg, which is a sorry excuse for a financial channel [In the hour running up to the London market opening, Bloomberg UK runs a heavy mix of adverts and sports/entertainment stories to the detriment of reporting on the morning’s corporate news releases]. The Korean channels feature lots of charts and chat-feeds like Twitter with viewer commentary. It’s intense stuff, it’s what trading is really about [sadly], and I think there might be three Korean channels just like this.

Financial trading in Korea

The market here – and the way people trade – seems to be different to England. There’s a lot of actual real stock buying, which means betting on upwards movements only, although there are also Equity-Linked Warrants (ELW) which are quite popular [if it’s anything like ‘covered warrants’ in Europe the deck is probably, by design, heavily stacked against the trader]. It’s easy to look clever in a bull-market with products like this.

I buy and sell financial contracts. In theory, it’s the difference between the price now and the price at some future point in time [but unlike most warrants, they don’t carry exponentially volatile expiry dates]. Think of it as the theoretical ownership of shares in a company, but you never actually own the stock. I might hold these financial contracts for weeks, minutes or even sometimes seconds. I also bet on downwards movements in the things I trade – which is called ‘short-selling’ or ‘shorting’. Overall, it’s not a term I’m fond of, but I suppose you could class me as a ‘daytrader’.

Trade what you know

I don’t trade any Korean companies. When I lived in England, I used to trade the UK and the US primarily, but I can’t really trade the US any more because of the time difference.

The problem with trading Korean companies is mostly the language barrier [although I suspect market liquidity isn’t as great either]. If I used a Korean securities company (or ‘broker’), even if I can overcome the Korean language interface – or they offer one in English – I can’t understand the news. I have to understand what’s happening with what I’m trading [another school of thought in the community differs on this point]. Anyway, as things stand, with my brokers and trading systems, I have no access to the Korean market. I’m not exactly sure why this is – I have access to many other global markets including Japan – but historically I think there have been lots of restrictive laws in Korea which make the whole business rather difficult.

The fn Hub

Of course, Korea has its ‘Financial Hub’ project – or ‘fn Hub’ as they [bizarrely] call it [or as I call it, ‘another fn hub’]. The fn Hub wants to create an environment where “domestic and foreign companies can compete freely (and thrive together)”.

One of the reasons London has been successful as a financial centre is that there is little regulation there. But here there are barriers – for example in foreign banks taking over domestic ones. The Financial Investment Services and Capital Markets Act 2009 broke down some of the regulatory barriers, but the government is still talking about whether to allow hedge funds to operate here – hedge funds [rightly or wrongly] are a fundamental part of the modern system in London and New York.

So some companies can’t operate here, even if they want to. Of the contracts I trade, which include stocks, commodities and currencies, none of my currency brokers will let me have an account in Korea, because of the Korean financial and banking rules. And I understand the difficulties, because my bank – [fn] HSBC – which is a global bank advertising a ‘global account’, doesn’t allow online UK to Korea money transfers. It all has to be done by phone. [I found this important fact out after they’d convinced me to open an account on the basis I could do my global banking over the Internet – which given I specified I wanted it for Korea, they should have known was impossible].

So with HSBC – and other banks I suppose – I can’t bring money into Korea electronically, or move it out. So, no electronic movement of money. I think I understand why this is – it’s probably a legacy of the 1997 Asian Financial Crisis, which created a fear that money moving in and out quickly could lead to a rapid economic collapse. But restrictions are the enemy of capitalism. I’m not ethically justifying this kind of global capitalism – it’s responsible for lots of problems in the world like the Credit Crisis. But it’s the way things are. Modern global capitalism means the free movement of capital, money in other words.

Korea as an ‘Asian Financial Hub’

I think the government here is trying to head in the right direction, and working sincerely towards their goal of making South Korea an ‘Asian Financial Hub’. But clearly it’s slow progress, and I think people have to be realistic about this idea. Look at what you’ve got right now – Singapore and Hong Kong are financial centres of sorts because they use English [for business at least]. Japan is a major financial market because of its financial power and the financial infrastructure it built up as part of that. You get the impression with the ‘fn Hub’ that it’s being talked about as some kind of replacement for these other financial centres. But what’s Korea’s unique selling point?

I don’t see that Korea will ever be the kind of Asian Financial Hub they are dreaming of. First of all, politics is a problem I’m afraid. Can you persuade companies to come here when this country is regularly threatened by an aggressive neighbour? Then there’s the language barrier and the anti-foreign rhetoric which private hate groups and the government regularly engage in [the latest is that apparently Ulleung Island could be 'militarily threatened' by Japan, in addition to the 'foreigners are spreading AIDS' political issue which I've previously mentioned. It's not that Japan is necessarily any less xenophobic of course - but they already have a financial hub whereas the government in Korea is trying to attract foreigners in to build one up].

No more hubs

But the bigger issue might be the whole idea of financial hubs and international financial centres in the first place. These days markets are consolidating, becoming increasingly electronic-only and speed of execution is an issue [high-frequency trading]. In the past, financial traders had to be near where the action was, but increasingly you put your computers there (or actually at the geographical mid-point between two markets) and you sit somewhere else. If anything, one day, there might be no financial hubs of any kind.

Don’t try this at home

I wouldn’t recommend trading as a job. In fact, I wouldn’t recommend it to my worst enemy. Longer term investing can be sensible, although nobody knows what the future is going to bring.

Busan e-FM
Inside Out Busan

Air date: 2011-04-13 @ ~19:30


Anonymous said...

Hey Mike,
I came across your blog in my jobsearch (for accountancy/finance roles!).
I too am a Brit and currently residing in Busan. Could you expend some advice of job hunting in the aforementioned field?
PS: you definately can transfer funds from UK to Korea online on HSBC as I've done it myself.

Mike said...

Sorry for the delay in replying, but your comment has just appeared after Blogger's extended outage and subsequent patchy attempts to restore their lost data.

As I work for myself, there's little I can really offer in the way of advice, especially if you're looking for a job working for a Korean company. Proper market-related finance roles are notoriously difficult to come by in London and I imagine it's just as competitive here, although being a foreigner in limited supply might work to your advantage. For every high-profile job with a six or seven figure (GBP) bonus there are thirty other back-room wannabes who'll never make it onto the gravy-train. The work may be OK - but unglamorous. I deal with people like this a lot though and almost to a man (they're almost always men) they are such a miserable chip-on-the-shoulder bunch it's left me with the distinct impression the work actually must be awful.

Accountancy is really outside my area entirely I'm afraid so I can't suggest anything.

I don't know how you're transferring funds from the UK to Korea online as there's no option in Global Banking to do this - it says the UK-Korea fund transfers aren't supported - and HSBC have specifically told me over the phone and face-to-face that it can't be done because Korea is not on the list of electronically transferable countries. I'm a Premier customer as well so it's not about my level of access.

On the other hand, HSBC is - without doubt - an utter disaster of an organisation where the left hand doesn't know what the right hand is doing. In fact, more than that, the individual fingers have no awareness of one another. Recently I believe the CEO himself said that HSBC's global operations are run as a series of (disconnected) fiefdoms, so it's entirely possible you've found a way of doing it - if so I'd love to know. Email me via my Blogger profile if you like.

Abby said...

About FnHUB
I found about Busan’s urban plan few weeks ago actually and was also bewildered by the idea with the same reasons you’ve stated above. OK, NohMuHyun (the formal president) once wanted to move the capital down to some other city, emulating Washington D.C and NYC. The difference this time is, it's really taking place. The decision has been made. The date has been set. Sealed. Done. Move on. I agree that Korea has to endure several decades before looking somewhat similar to HK, Singapore, and Tokyo.

About Korean trading TV channels
Thanks for clarifying the grey area why I felt the way I felt. I feel much comfortable with English financial terms which contain more self explanatory terms for average people, like me, to understand than Korean financial terms which are combination of Chinese words. As a person who is not IN the market, I prefer watching Bloomberg than CNBC for CNBC offers much more technical spot news. Your comment on serious Korean financial channels finally explains why. I sought out for Korean English financial channels but I only came across these intimidating solemn analysts sitting behind their laptops explaining the Korean market minute to minute. I emailed- Hankook KyungJae (Korean Economy News) if they are planning on business any expansion for English readers/viewers. Thanks for distinguishing between Bloomberg and Korean TV channels. Before I wasn’t able to pinpoint to why I was tuning into Bloomberg more.

Good point on Koreans’ innate fear of suddenly foreign capital extracting from the country leaving the country bankrupt. I would have to do more comparative analysis on Korean fn regulation and the ones in the West.

MY question for you: do you think offering more English news would draw investors like yourselves; therefore increase liquidity?

Ditto to your stance on capitalism.

It’s frustrating for both foreigners and person like myself who want to learn more about Korean macro-economy as well as small-midcap businesses (but have limited access). I think CNBC who calls Korea, “the darling market of Asia,” notices and informs the viewers. And only the big investors like Buffet can find out about companies like Taegutec,,

For Busan fnHub to work,or at least to mimic Singapore, HK, or Japan, it needs the help of media alongside with de-regulation. Bloomberg started to hire few more reporters in Seoul this year, but I feel like that’s not enough. I think the dire press situation is similar in India—though India at least has population that leaves no option but to make it as a big financial hub. Even in WSJ, Reuters, you can only find lame North Korean story when you punch in South Korea in search engine. Major news bureaus such as NYT, WSJ, AP, Bloomberg in HK, Singapore, and Japan have been established for decades which help in attracting both human capital and foreign capital. I guess, in this respect, mad props to DongSeo University for setting up an e-FM.

Mike said...

Hi Abby,

The Sejong City project seems to be falling apart. I believe the government are clinging on to the idea of creating an 'administrative capital' there but there's a great deal of social and corporate apathy, if not hostility:

Korea Inc. abandons Sejong

I wouldn't be surprised if the plan to move the capital there is dropped in future.

I agree that Bloomberg and the trading channels on Korean TV are quite different in style and so the target audiences will end up being different. Bloomberg isn't terribly useful for me but they must have an audience.

You ask an interesting question on the availability of English news and its effect on liquidity in the Korean market. Actually, it's such an interesting question I might write a blog entry about it in the next few days time allowing.

My initial oversimplified thoughts: Liquidity is a positive, illiquid markets make trading impossible and investment difficult. Liquidity is provided by traders. To bring traders like me into a market like Korea requires consumable real-time news and data, and cultural imperialism or not the bottom line is that has to be in English. Armed with some kind of streaming Yonhap business news service, a good financial (price) data service, a broker supporting an English language version of their trading platform and a range of derivative tools to trade the underlying companies (or markets), I might be encouraged to make a foray into the Korean financial market as an international trader. Those are a lot of perhaps unrealisable conditions, but that's what I need. I don't know whether it's important because it's not so much me that the Korean government wants to encourage as the more professional versions of me working for the big trading desks or hedge funds. Maybe the Korean market is easier for them because they have the resources to create their own internal news and data operations - or maybe they feel the Korean market has a lot of barriers to entry in the same way I do.

In the end people overseas can understand the chaebol - Korea's 'blue chip' companies - to some extent, but as you say, the real problem lies in the small to mid-cap market and that's interesting because inequality - both social and corporate - is becoming a bigger issue in Korea. But the problem is that without proper access to international capital markets Korean mid-cap companies may find it difficult to grow. That perpetuates the chaebol system which I think can be a hindrance to Korea's economic development. For example, in many ways Korea had a head start in mass Internet adoption but the big Internet companies here arguably stifled innovation. What if the startups had been able to access international capital? I can't say it would have made a difference but it raises the question in my mind of whether Korea is being everything it can be as an economy or whether it's really more dysfunctional than it should be.

Mike said...

Of course, Buffet usually tends to invest conservatively in undervalued businesses. In a growth economy such as Korea's should any company be so undervalued that he buys or invests in it? Is it a sign of a failure of domestic markets to provide capital or provide an easier route for lesser international investors to provide that capital? I don't have any answers to that - just questions.

Buffett Visits Korea, Scouts for Deals
Buffett to Invest W100 Billion More into TaeguTec

I don't think Bloomberg employing more reporters will make much of a difference in the overall scheme of things either - and even a concerted media effort to shed some daylight on the Korean market is ultimately a bit intangible unless there are some very specific deliverables. I think de-regulation needs to happen and frankly, Seoul needs to get over the psychological legacy of the Asian Financial Crisis because restricting the free-flow of capital is just about the best way possible of rendering the whole fnHub project pointless in my opinion.

It probably says something that I keep almost all of my money outside Korea because of these barriers, which ultimately deprives Korean banks of that tiny bit of working capital. Multiplied by hundreds or thousands though, and it really starts to make a difference - it might even be the difference between the financial health of the banking system and its undercapitalisation. Korea isn't doing itself any favours here but on the other hand genuinely attracting investment into Korea isn't an easy problem to solve in the other respects I mentioned.

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