[Opinion] Apple’s Strong Performance Is Key to a Comfortable Retirement for Koreans

National Pension Fund Achieves Record High Performance Last Year Thanks to US Stock Market
Consider Inheriting Tax on Assets Instead of Stocks

The era has come where Koreans can enjoy a comfortable retirement only if iPhones sell well.

The National Pension Service recorded a record-high 12% return last year. It earned over 100 trillion won annually. In fact, the National Pension is destined to run a deficit soon. People will have to pay more now and receive less pension later. Those who are somewhat older are in a better situation. The MZ generation (Millennials + Generation Z) youth might end up paying money but never receiving any benefits. However, if the National Pension continues to generate such returns every year, the story changes. Future generations can enjoy a stable retirement.

Behind the strong performance is Apple. The National Pension Service has started to actively invest in overseas stock markets instead of the Korean stock market. Now, out of the total 1,000 trillion won in assets, overseas stocks account for 303 trillion won, while domestic stocks are less than half that at about 141 trillion won. The largest investment is in the U.S. securities market. As of the end of 2022, 64.1% of overseas stocks are direct investments in the U.S. Among them, the largest holding is Apple (6.58%). Next are Microsoft (MS, 5.8%), Invesco MSCI USA Exchange-Traded Fund (ETF, 4.79%), Amazon (2.97%), and Nvidia (2.71%) in that order.

Last year, the value of direct U.S. investments soared by 41.2%. The profit made was 28 trillion won. Meanwhile, the domestic stock return rate was 16.50%. When U.S. IT stocks led by Apple rise, our retirement becomes more prosperous. The National Pension Service has decided to buy more overseas stocks. They plan to increase the overseas stock ratio from 30.3% at the end of last year to 33% this year. On the other hand, the domestic stock ratio (15.4%) will drop by 0.5 percentage points from 15.9% at the end of last year. It seems the Korean stock market is being neglected by the National Pension Service.

Korean product competitiveness is now at the world’s highest level. So why don’t Korean company stock prices rise? Because people don’t buy the stocks. To encourage stock purchases, profits must be distributed as dividends or the stock price itself must rise. However, Korean companies are stingy with dividends. In the case of large corporations, the major shareholders’ stake (3.5% for owners of 60 large companies) is low, so they avoid dividends. It is more profitable for the chairman to create many subsidiaries, occupy high positions, and receive higher salaries.

Stock price increases are also uncomfortable for the owner families. Korean conglomerates have to pay inheritance tax as high as 60%. If stock prices rise, taxes increase. As a result, the price-to-book ratio (PBR, stock price divided by net asset per share) of listed companies in Korea is 0.9 times. Simply put, you can buy all the company’s shares by selling only 90% of its assets. This is half the level of Taiwan (2.2 times). Even China is at 1.2. President Yoon Suk-yeol attended the stock market opening ceremony earlier this year and said, “During my term, I will resolve the ‘Korea discount’ (undervaluation of the Korean stock market).” Then on the 26th, the government announced a corporate value-up program.

However, the market seems slightly disappointed. After the announcement, stock prices actually fell. People say it is neither here nor there, ambiguous. The government plans to hold another seminar in May and present an upgraded, more concrete plan. Korean company stock prices are abnormally low. Owners are suppressing stock prices to some extent. The core issue is taxes, especially inheritance tax. If the PBR is below 1, it is worth considering collecting inheritance tax based on corporate assets instead of stocks. The PBR would quickly rise above 1. I hope the government will come up with a clever plan in May to elevate the Korean stock market to the next level. I do not want to live in an era where Apple and MS performance is more important than Samsung Electronics and Hyundai Motor.

This content was produced with the assistance of AI translation services.