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.
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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).
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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