Korea best in Asia on in­vestor con­fi­dence in econ­omy: IMF

The Pak Banker - - Front Page -

SEOUL

Kang Man Soon wept on the day 15 years ago that she gave her gold wed­ding ring to the gov­ern­ment, join­ing the mil­lions who do­nated heir­looms to boost South Korea’s re­serves dur­ing the Asian fi­nan­cial cri­sis.

“We just couldn’t let the coun­try go bank­rupt af­ter all the sac­ri­fices and hard work to save it from Ja­panese colo­nial rule and civil war,” said Kang, whose hus­band ful­filled a prom­ise to re­place the gold band by giv­ing her a one-carat di­a­mond ring this year for her 60th birthday. “The econ­omy is much big­ger and stronger now and our cars and prod­ucts and pop songs are fa­mous around the world.” Un­der­pin­ning the na­tion’s in­dus­trial suc­cess are the chae­bol, large, fam­ily-con­trolled con­glom­er­ates held to­gether by a net­work of crossh­old­ings. Their size, gov­ern­ment sup­port and ac­cess to cap­i­tal have made many world lead­ers — Sam­sung, for ex­am­ple, in mo­bile phones and flat screens, Hyundai Heavy In­dus­tries Co. in ship­build­ing.

Park Geun Hye, for­mer leader of the rul­ing New Fron­tier Party, cen­ter, waves af­ter be­ing elected the party’s pres­i­den­tial can­di­date at a na­tional con­ven­tion in Il­san, north of Seoul, South Korea, on Mon­day, Aug. 20, 2012.

Since the 1997-1998 slump, South Korea has rid­den eco­nomic crises bet­ter than most ad­vanced economies. The stock mar­ket has risen five­fold, led by Sam­sung Elec­tron­ics Co. (005930), which now makes al­most a quar­ter of the world’s mo­bile phones, and Hyundai Mo­tor Co. (005380) and its af­fil­i­ate Kia Mo­tors Corp. (000270) are the most prof­itable of the six big­gest global au­tomak­ers. With growth this year set to beat Asia’s other wealthy nations, the three big­gest credit rat­ing com­pa­nies up­graded South Korea’s debt, cit­ing the abil­ity to weather shocks bet­ter than its peers.

“It’s this ex­pen­sive les­son we learned that made us pre­pare so well for the next cri­sis,” said Kwon Dae Young, who was in charge of in­ject­ing for­eign cap­i­tal into banks at the fi­nance min­istry in 1997. “Korean com­pa­nies now have much health­ier bal­ance sheets and the gov­ern­ment is backed up well with a solid amount of for­eign ex­change re­serves.”

With Ja­panese ex­porters ham­pered by a strong yen, Europe en­cum­bered by debt, and U.S. un­em­ploy­ment hov­er­ing near 8 per­cent, South Korea’s re­silience of­fers a bright spot in the de­vel­oped world. The In­ter­na­tional Mone­tary Fund fore­casts Asia’s fourth-largest econ­omy will grow 2.7 per­cent this year, com­pared with 2.2 per­cent in Ja­pan, 1.8 per­cent in Hong Kong and 2.1 per­cent in Sin­ga­pore.

“I think South Korea will prob­a­bly grow by around 4.8 per­cent over the next decade, which means it will continue to see its GDP per capita rise no­tably and rel­a­tive to other de­vel­oped coun­tries, es­pe­cially Ja­pan and Euro­pean coun­tries,” said Jim O’Neill, chair­man of Gold­man Sachs As­set Man­age­ment.

Gross na­tional in­come per capita was $20,870 last year, com­pared with Ja­pan’s $45,180 and Hong Kong’s $35,160, ac­cord­ing to World Bank data.

South Korea’s re­silience has given it the sta­tus of a safe haven in the bond mar­ket, where in­vestors held 88.3 tril­lion won of lo­cal cur­rency debt at the end of last month, dou­ble the amount in 2009, data from the na­tion’s fi­nan­cial reg­u­la­tor show.

South Korea’s won has ap­pre­ci­ated 5.7 per­cent this year to 1,090.70 per dol­lar as of to­day’s close in Seoul, the thirdbest per­former among Asia’s 11 mos­tused cur­ren­cies. The won will strengthen an­other 1 per­cent by the end of the third quar­ter of 2013, ac­cord­ing to the me­dian es­ti­mate in a Bloomberg News sur­vey.

The cur­rency is “struc­turally un­der­val­ued” said Eric Stein, a Bos­ton-based port­fo­lio man­ager at Eaton Vance Man­age­ment, which over­sees $198 bil­lion. “It will slowly but surely continue to ap­pre­ci­ate.”

Stan­dard & Poor’s, Moody’s In­vestors Ser­vice and Fitch Rat­ings boosted South Korea’s rat­ing be­tween late Au­gust and Septem­ber, with all three cit­ing strong fis­cal fun­da­men­tals and room to re­spond to ex­ter­nal shocks. The Bank of Korea has $322 bil­lion of for­eign ex­change re­serves, the world’s seventh largest, com­pared with a low of $20.4 bil­lion at the end of 1997.

While op­po­si­tion law­mak­ers have called for more pub­lic spend­ing, the gov­ern­ment on Sept. 25 re­leased a bud­get pro­posal for 2013 that would re­duce the fis­cal deficit to 0.3 per­cent of gross do­mes­tic prod­uct, the small­est in six years.

Un­der­pin­ning the na­tion’s in­dus­trial suc­cess are the chae­bol, large, fam­i­ly­con­trolled con­glom­er­ates held to­gether by a net­work of crossh­old­ings. Their size, gov­ern­ment sup­port and ac­cess to cap­i­tal have made many world lead­ers Sam­sung, for ex­am­ple, in mo­bile phones and flat screens, Hyundai Heavy In­dus­tries Co. in ship­build­ing.

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