Korean elections - Bloomberg

Park Geun-Hye, the GNP Presidential candidate, on the campaign trail. Source: Bloomberg

South Korean elections do not usually swing the Kospi, as weighty stocks like Samsung and Hyundai are much more influenced by world events than what happens in the small Asian nation they call home.

But as Korea heads for the polls in 2012, with an election for the National Assembly in April and one for the President in December, there are some key policy differences between the candidates that could change things for the chaebols.

The powerful global conglomerates include the Samsung Group which has operations stretching from chips to ships, the LG Group, active in electronics, telecoms and chemicals, among other things and the Hyundai Group, with cars, steel and construction.

The GNP, the ruling party, is currently the most likely winner, according to a poll released in late June. But Korean voters are famously fickle and in Presidential elections the winners are often decided late in the day.

Park Geun-Hye, the GNP candidate, is more pro-chaebol, according to analysts at Morgan Stanley.

"After abolishing the "equity investment sum caption rule" [in March 2009] that restricts the total sum of intra-corporate investments by chaebols, the GNP is now pushing a revision to the Monopoly Regulation and Fair Trades Act that will allow non-financial companies to own financial subsidiaries," they said in a report.

Conglomerates could want to add a bank to boost profits at their wide-ranging portfolios, but so far this has been against the law. Samsung already owns a brokerage, Samsung Securities, and the Korea Times has argued that the line between brokerage and bank could be beginning to blur.

The government, which is trying to offload a stake in one of the country's largest banks, Woori Financial, could also see a rule change as a good opportunity to find new buyers.

Park may also advocate lower taxes for big companies and wealthy people, which would benefit the chaebols.

"Investors are likely to react positively to an outright conservative victory, given leading GNP presidential candidate Park Geun-Hye's support for corporate Korea, balanced fiscal spending and less regulation," the analysts said.

In contrast, the candidate from the leading opposition party, the Democratic Party, is Sohn Hak-Kyu, who advocates more support for smaller Korea-focused companies.

"He believes the country's conglomerates crowd out small companies that have more-promising technology in certain sectors of the economy and would like to institute rules that would restrict large companies from entering business lines that the government deems more suitable for smaller companies," the analysts said.

Among other sectors, Sohn Hak-Kyu wants less involvement from chaebols in retail, where he is worried about large supermarkets crowding on small local stores, and in maintenance and repair.

Winners and losers at home

While the direction of the stock market is unlikely to be altered by the election, as it is so exposed to international influence, there are some domestic sectors which should benefit as the votes approach.

As Koreans try to get the vote out, advertising companies like Seoul-listed Cheil Worldwide, NHN, Daum and SK Comms should benefit from cash from political parties.

The government is likely to up spending on infrastructure as it tries to win the electorate over with (even) higher employment and a better property market.

Korea's large construction firms like Hyundai E&C and Daewoo E&C are busy building oil facilities across the Middle-East, but domestic companies like Halla Construction, Kolon E&C and Kumho Industrial could benefit from increased spending on construction at home.

Banks may also benefit as the government tries to increase home sales to please the populace. Morgan Stanley's top picks in the financial sector are Shinhan Financial Group, because of its strong fundamentals, and KB Financial, as it has recovered earnings momentum.

But some sectors could suffer as the government takes action against high inflation, a key issue for the election. Utilities, like Kepco and Korea Gas, and telecoms companies, like SK Telecom might find it hard to raise prices.

Affected stocks - Morgan Stanley

Source: Morgan Stanley

See also:
Full coverage of Korea - FT Tilt