Investors rediscover Korea

Global investors are queueing up to buy South Korean shares - and for good reason.

Global investors are making a beelinefor South Korea.The local currency, the won, has risen to a six-year high of 1,020 to the US dollar, while equity investors snapped up over half a billion dollars of local stocks in the last week of May alone.

You can see why. The global recovery remains historically tepid and uneven, but economies in the West are showing signs of building momentum, as Josh Noble points out in the FT, and so Asia's more export-driven markets are in the spotlight.

Korea, where exports make up over half of GDP, is highly exposed to improving global growth, and its own growth is expected to accelerate over the next two years.

The central bank has pencilled in 4% growth for this year, after last year's 3%, as exports should strengthen thanks to Europe and America's recoveries. Foreign sales grew by 9% year-on-year in April, the fastest pace in more than 18 months.

Whenever the won rises, there arefears that it could dampen the appealof the crucial export sector by making goods and services more expensive.

But Korea's highly competitive exporters, led by smartphone giant Samsung and carmaker Hyundai, have held their own, or even increased market share. And sustained periods of currency appreciation haven't fazed exporters in the past.

Between 2002 and 2007, for instance, the won gained a third against the greenback. But South Korea nonetheless managed average annual export growth of 16.5% a year and its share of world exports stayed steady at 2.7%.

Similarly, an RBS note points out that Korea and Japan only compete directly in industries that comprise less than a fifth of Korean foreign sales, which limits the falloutfrom the Bank of Japan's efforts to weaken the yen.

The domestic outlook is also encouraging, says Finanz und Wirtschaft. Consumer confidence, buoyed by rising pay packets, is close to a three-year high. Government efforts to help small and medium-sized firms compete more effectively against the big companies that dominate the economy have also encouraged investors.

They have also noticed that stocks remain very reasonably priced on a forward price-to-earnings ratio of 19.8 and a price-to-book-value ratio of 1.17. One possible Korea play is the DB X-Trackers MSCI Korea TRN ETF (LSE: XKSD).

Recommended

The top funds to invest in
Funds

The top funds to invest in

Investors continued to the passive preference throughout May, while high-yields were also sought. We look at the top funds, stocks and trusts that inv…
5 Jun 2023
Cheap and cheerful or reassuringly expensive?
Sponsored

Cheap and cheerful or reassuringly expensive?

Many investors aim to pick up “cheap” shares. But cheap does not always mean good value, says Max King. Quality comes at a price.
21 Dec 2022
Profit from patience
Advertisement Feature

Profit from patience

Smart investors will reap the rewards by staying focused on the long-term, research from Alliance Trust shows.
9 Dec 2022
Share tips of the week – 9 December
Share tips

Share tips of the week – 9 December

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
9 Dec 2022

Most Popular

How much will it cost you to retire early?
Pensions

How much will it cost you to retire early?

The pre-state pension income gap means couples may need an extra £136,000 if they want to retire at 60 – can you afford to retire early?
6 Jun 2023
Best debit and credit cards to use while travelling abroad
Personal finance

Best debit and credit cards to use while travelling abroad

If you’re going on holiday or travel abroad regularly, it’s worth knowing what the best card is to avoid hefty fees. We weigh up the charges and any p…
6 Jun 2023
Best easy access savings accounts – June 2023
Savings

Best easy access savings accounts – June 2023

Rising interest rates have boosted the returns on instant-access savings accounts and we're seeing some of the highest rates seen in years. We look at…
8 Jun 2023