Many often point to China’s meteoric rise to power but South Korea deserves investor’s attention offering under-rated values and long-term economic stability. Certainly, it will stand to benefit from continued recovery in China, Japan and US. South Korea adopted numerous economic reforms in early 2009, amid the global financial crisis; including greater openness to foreign investment and imports.  

Several key factors pop-out while researching South Korea. For example,

- South Korea growth on track at 7% GDP, 2010

- Total deficit to 2% of GDP, it’s $ 825 billion in annual GDP

- High-quality educated and IT wired population of 38-million Internet users. Its per capita income in purchasing power-terms now $28,000 and closing on Japan at $33,000

- Smart economic leadership, early on in global financial crisis it setup $15-billion re-capitalism fund and stabilized its currency arranging $90-billion guarantees with USA, Japan and China then extracted maximum funds with very little debt.

- Early on it used targeted fiscal stimulus to focus heavily on job creation and sustainable business developments. South Korea’s unemployment rate is 3. 6%, Q1 2010.    

South Korean’s challenges include; The South Korean economy’s long term challenges include a rapidly aging population, inflexible labor market, and overdependence on manufacturing exports to drive economic growth. Its labor force stands at about 24. 4 million people. The sector workforce occupation breakdowns include;

Agriculture (7. 2%)

Industry (25%)

Services (68%) 

Further, details show key agricultural products rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs and fish. Its top industries include electronics, telecommunications, automobile production, chemicals, shipbuilding, and steel.

Perhaps, you’re familiar with Samsung (SSNLF. PK), LG (LGERF. PK), and Hyundai (HYMLF. PK), among other top South Korea corporations.    

Several companies managed to upgrade their technological prowess even as the recession bit. For example, a consortium led by state-run Korea Electric Power Corp (KEP), beat-out the USA, French and Japanese rivals to a $20bn nuclear power contract in the United Arab Emirates. Seoul predicts it will bag $400bn in nuclear reactor sales over the next 20 years.  

In the automobile manufacturing sector, carmaker Hyundai has warmed its corporate hands on Detroit’s bonfire. Now the world’s fastest-growing auto-manufacturer, it has increased US market share from 3. 7 per cent to 4. 4 per cent in just 12 months. Toyota’s problems will only add to its momentum: it is one of the companies offering a $1,000 discount for a Toyota trade-in.    

Manufacturing exports have come back faster than expected, amounting to almost everything. Korean companies are major suppliers of equipment and materials for building China’s need for an incentive-led extravaganza. His cars, DVD recorders and other electronic goodies is the right price to win market share of greedy consumers. Exporters in emerging markets is their high concentration, which would have helped 70 percent of demand for Korean goods.

Manufacturers have further benefited from a sharp currency realignment that has seen the yen strengthen and, until recently, the won depreciate. “Since the crisis, things have flipped decisively in South Korea’s favor,” says Kwon Goo-hoon, executive director at Goldman Sachs (GS) in Seoul.    

The successes of corporate Korea are being matched by a new diplomatic swagger. Washington’s relations with Japan are rockier than normal because of disagreements over military bases. US-Sino ties are being tested by disputes over arms sales to Taiwan and cyber-security. That leaves South Korea as Washington’s new best friend in the region, a factor that has helped bolster its credentials as this year’s president of the Group of 20.    

South Korea, of course, faces enormous challenges. Its success is too dependent on a clutch of huge conglomerates such as Samsung. These companies still need to prove they are world-class innovators. The service sector is under-developed. The labor market is too inflexible for an economy seeking rapidly to redeploy resources to higher-value industries. Korea’s ride on China’s back could yet prove a liability if its giant neighbor stumbles. It also has one of the world’s most rapidly ageing societies. Unless it can increase productivity, its shrinking labor force holds out the unappetizing prospect of producing Japanese-type growth levels.    

Of course, many of these problems — like those of Japan itself — are products of success. An economy that in the 1960s had a per capita income on a par with sub-Saharan Africa is now snapping at the heels of Britain and France. South Korea is a smart place to look for anyone seeking under-valued investment opportunities.   


Article Source:China Sourcing Blog

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