There seems to be strong interest in the South Korean market (represented by the Kospi) after the run-up in the past two months. On a year-to-date basis as at 23 February 2005, it rose 13.4% and in 2004 it rose 22.1% in Singapore dollar terms. Recent developments on the economy is highlighted in our bi-weekly sector update on Asia.

South Korea Business & Consumer Confidence Improved

Both South Korea's business index and consumer confidence index rose as shown by separate surveys. Consumer confidence rose to 90.3 in January 2005 as tax cuts and lower interest rate were beginning to lift the confidence of the domestic economy. Although this reading of below 100 shows that pessimists outnumber optimists, it does show an improvement in overall consumer sentiment. Of the five measures of confidence in the survey, attitudes towards the economy showed the biggest improvement, it rose 11.4 points from last month to 85.6. Attitudes towards living standards, overall spending and spending on goods and entertainment also improved. To encourage companies in South Korea to create more jobs, the government announced that they would offer companies a 10% tax break on investment in plant and equipment this year. In addition, there are also improvements in the level of credit card debt. It fell 21% year-on-year in September 2004 to 24 trillion won (from 30.4 trillion won in September 2003).

Source: Korea National Statistics Office

Business confidence measured by the Federation of Korean Industries, which represents the nation's biggest industrial groups as that its business confidence index rose to 85.7 points in February 2005 from 77.8 in January 2005. This confidence measure is derived from surveying companies on their outlook for exports, domestic sales and capital investment in the month ahead. This is a forward-looking survey and is typically used to measure business confidence one month ahead.

Source: Federation of Korean Industries

South Korea Exports Grew At A Slower Pace

Exports rose 19% year-on-year in January 2005, a marginally slower growth from the 20% advance in December 2004. The won appreciated in the last few months of 2004, for the whole year the Korean won appreciated 15% against the USD. While the appreciation of won positively affected the value of investments, growth in exports might slowdown. South Korean exports would be more expensive to overseas buyers as the Korean won appreciates. However, exports are still growing healthily at a double-digit growth rate despite appreciation in the currency.

Source: Bank of Korea, Korea International Trade Association

The slew of positive economic announcements helped pull investors back to the South Korean market. The current Bloomberg estimated valuation at 12.4 times. However, valuations are now less attractive than the last quarter of 2004. Even then, valuations on the South Korean market are still more attractive than other Asian markets. Fundsupermart carries three funds that invest in South Korea. These are Fidelity Korea, Franklin Templeton Korea and OCBC Korea. For investors who wish to have exposure in Korean funds, it is important to note that the underlying market can be volatile. We did a detailed review on South Korea recently titled "Could South Korea Surprise Investors?" on 17 December 2004. View this article to find out more about the market. Lastly, investors should take into account their risk appetite when investing in this market and keep similar single country funds in the supplementary portion of their portfolio.

Source: Bloomberg

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