KOSPI Plunges More Than 3% on U.S. Midterm Election Shock… AI Investment and Semiconductor Demand Remain Resilient

Lee Kwang-soo viewed the Hanjin KAL ownership contest as a case exposing weaknesses in the governance of South Korean conglomerates. An owner who controls an entire group while holding about 20% of its holding company is vulnerable to a management-control dispute, he argued, adding that Hoban Group’s challenge targeted this weakness of a low ownership stake. To protect control, he said, companies should not wait until a dispute erupts to seek allies, but should secure shares through measures such as mergers and build a base of friendly shareholders over the long term.

If a company is well managed and consistently pays dividends and returns capital to shareholders, existing shareholders have a basis for supporting its owner. It is difficult to build a base of friendly shareholders by asking for help only in a crisis; companies must earn trust through shareholder policies and business performance. Lee also criticized Hoban Group, arguing that it should use funds accumulated through its real estate business for industrial investment, factory construction and job creation rather than a shareholding contest.

He described the dispute as an example of potential change in the capital market, as the past practice of maintaining control through cross-shareholdings of treasury shares among conglomerates has become more difficult. He stressed that listed companies have an obligation to provide investors with information, given that they raise funds in the market and controlling shareholders can monetize their stakes. Noting that investors must infer the business operations of many companies from their financial statements alone, he also called for mandatory investor relations materials.

Citing Kodak and Netflix, Lee Kwang-soo argued that companies must accept cannibalization, in which a new business eats into an existing one. Kodak invented the digital camera in 1975 but failed to develop the new technology because it wanted to protect its film business, eventually filing for bankruptcy protection in 2012. Netflix, by contrast, shifted its focus from the DVD rental business that had fueled its growth to streaming. Its subscribers and share price plunged during the transition, but it later achieved long-term growth.

Google is pouring money into artificial intelligence even as AI challenges its search advertising business. Apple, by contrast, has appeared focused on protecting its existing hardware business. Lee said it was impossible to determine the winner based only on short-term results and share-price movements, but argued that it was important for companies to have the courage to sacrifice some current profits and prepare for future businesses.

He cautioned investors to beware of investment solicitations that promise to recover losses all at once during a market downturn, as well as channels impersonating the host. Lee said he does not recommend individual stocks or operate a for-profit investment business, and advised investors to decide in advance how much loss they can bear and what proportion of their assets to hold, then act according to plan. Rather than being swayed by short-term volatility, investors should take a long-term view of the market while following risk-management principles, such as reducing their exposure when it falls below a threshold they have set.