Market Overview

Common Questions About the Current State of Affairs in South Korea

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  • Official Name: The Republic of South Korea.
  • GDP and global rank (2010): $1.423 trillion - ranked 15th largest in the world.
  • Per Capita GDP and rank (2010): $29,997 – ranked 26th largest in the world.

How did South Korea get to where it is today?

In 1961, President Park Chung-hee Saemaul began an effort to develop South Korea's economy into a global power. At the time, per capita income in South Korea was less than $100 (US) per year, and the country was heavily reliant on foreign aid.

The “Saemaeul movement” was meant to modernize the rural South Korean economy, which was plagued with poverty. The movement provided villages with free raw materials for the locals to build whatever they wished. Those who performed well were granted additional resources at no cost, so long as they developed goods or an infrastructure that would benefit society overall.

Where are they today?

As a result of the Saemaeul movement, South Korean citizens developed an advanced understanding of engineering and construction, which still serves as an extremely large aspect of the country's economy. Engineering services, as well as the production of steel, ships, cars, and military equipment serves as the backbone of the South Korean economy.

South Korea is also known for its contributions to the worldwide technology market. Telecommunications equipment, computers, and other technology products are widely held in high regard by consumers worldwide.

The country, however, is probably best known for its construction capabilities. South Korean companies have taken the lead in building some of the world's most prestigious buildings including Dubai's Burj Khalifa (largest building in the world), Taiwan's Taipai 101 (third largest building in the world), and Malaysia's Petronas Towers (fifth largest building in the world). South Korean companies also have extensive knowledge in bridges, nuclear power plants, housing projects and railroads.

South Korea is the world's largest shipbuilder, accounting for over 50% of the global shipbuilding market. The world's four largest shipbuilding companies are all South Korean.

South Korea is the fifth largest motor vehicle producer in the world, having sold over 4 million units in 2010. The largest Korean manufacturer is Hyundai-KIA Automotive Group, which ranks as the fourth largest in the world.

The country's economic success can be directly tied to its diversity, ranging from engineering and construction, to high-tech industries such as electronics manufacturing and wireless telecommunications equipment.

South Korea is home to the world's two largest LCD panel makers: LG Display and Samsung Electronics. These two companies alone exceed 50% of the global LCD panel market.

OK, sounds good. But how can I invest?

Suggested ETFs

iShares MSCI South Korea Index Fund (NYSE: EWY): hHlds 109 of the largest South Korea-based companies ranging from multinational conglomerates serving the global market, to mid-cap companies focusing primarily on the needs of the South Korean population.

The index includes well-known brands, such as Samsung Electronics (the world's largest IT maker) and Hyundai Motors (fastest growing automaker since 2009). The fund also holds companies that are not generally known outside of South Korea, such as NHN Corporation, the country's most popular internet portal and search engine.

Most of the holdings in the ETF do not trade on American exchanges, so investment in this fund can be advantageous for an investor looking to diversify his/her portfolio to the South Korean market.

IndexIQ South Korea Small Cap ETF (NYSE: SKOR): Holds approximately 100 South Korean small-cap companies with market values of at least $150 million and consistent track records of profitability. The average valuation of a company in the index is $637 million.

The ETF is invested in South Korean companies that tend to focus on local markets, and, thus, are not generally affected by fluctuations/occurrences in the global economy, international competition, or commodity prices.

As an example, LIG Insurance Co. is one of South Korea's largest insurance providers, providing coverage to millions of Korean citizens. Small cap companies like LIG Insurance Co. have a history of profitability and tend to fare well as the local economy continues to expand.

Suggested Individual Companies

Posco (NYSE: PKX) is the world's third largest steel maker by market value. Posco has been the backbone of South Korea's industrial development for the past 50 years, as it is the largest supplier of steel to the country's shipbuilding and auto industry companies.

Building on decades of success at home, POSCO began investing in other parts of the world and currently has 26 subsidiaries. POSCO is the first foreign firm to operate in China, operating the Zhangijagang Pohang Stainless Steel (ZPSS) steel mill, which produces 600,000 tons of stainless steel annually.

Kepco (NYSE: KEP): Short for Korea Electric Power Corporation, Kepco is the largest electric utility company in South Korea. Kepco generates, transmits, and distributes electricity through its nuclear, wind, and coal plants, providing 93% of South Korea's energy needs.

Kepco has expanded successfully internationally, and currently has projects in 13 countries across the world.

As the global competition intensifies for energy providers, Kepco has purchased stakes in other fuel companies. In 2010, Kepco acquired the Bylong Coal Mine in Australia, and a stake in Bayan Resources in Indonesia. As a result, Kepco will raise coal production by 7 million tons beginning in 2015. Given their track record of success and long term vision, it is not surprising that Kepco ranks number 271 in the Forbes largest companies listing as of 2010!

SK Telecom (NYSE: SKM): Short for Sunkyoung Telecom, SK is a South Korean mobile telecommunications operator and is one of the nation's largest conglomerates.

SK Telecom controls over 50% of South Korea's cell phone market and rolled out the world's first “third generation synchronized IMT-2000 cellular system.” SK Telecom has continued to dominate the South Korean market adding approximately 13,000 new customers daily, and was the first foreign telecom company to enter the Chinese market back (2000).

SK Telecom launched Mobile Money Ventures, a joint venture with Citibank (NYSE: C), which supports banking on mobile phones. SK Telecom is regarded as the most advanced provider of mobile financial transactions, allowing for executions worldwide.

Conclusion

Throughout the 1960's, South Korea was considered one of the poorest nations in the world. However, since initiating economic reforms, South Korea has built an extremely advanced economy, moving from near 0 GDP to over a trillion dollars today (referred to by South Koreans as the “Miracle on the Han River).

The country has also hosted the 1988 winter Olympics, as well as the 2004 World Cup of Soccer. South Korea truly revolutionized worldwide technology and set the standard for engineering and manufacturing.

Due to decades of hard work, innovation, and openness to foreign investment, the nation currently ranks fifteenth overall in the “ease of doing business index.” The index is based on infrastructure, openness to foreign investment, tax incentives, investor protection, and along with many other factors. The” Korean Wave” (“Hallyu” in Korean) refers to the spread of South Korean culture around the world, including popular clothing lines, cuisine, video games, and especially movies.

South Korea is certainly a nation to be admired and respected, and should also be considered as one of the best places for investors looking for international exposure.

Posted-In: South KoreaEmerging Market ETFs ETFs

 

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