MONTREAL - The South Korean economy, which last year scraped through the global
slowdown without sinking into recession, returned to the recovery path last
month after faltering in January, Finance Minister Yoon Jeung-hyun said on
Friday, backed by a report that attributed earlier negative data to one-off
factors such as heavy snow and an end to tax incentives for car purchases.
February should show improvements on most fronts, according to the Ministry of
Strategy and Finance's monthly report, with retail sales rebounding from a 1.3%
decline in January from a month earlier, investment recovering, and a current
account surplus forecast of around US$1 billion. Yoon said jobs data would
start
returning to normal levels from this month, helped by government-led job
creation efforts, after improving in February.
The country's economic outlook indicator fell for the first time in 13 months
in January, after a faster-than-expected rebound over the past year, reflected
in the surge of about 73% in the KOSPI stock market index in the year to last
October. Facility investment contracted 9.8% in January, the current account
showed a $450 million deficit, and the jobless rate rose to 5% in the same
month.
Yoon said the economy probably grew faster last year than the earlier projected
0.2% rate, just enough to avoid what would be the first contraction in more
than a decade.
The finance minister's cautiously optimistic outlook is reflected in the stock
market, where the benchmark KOSPI closed up 1% on Friday at 1,617, from 1,552
on February 8. Even so, it is still down about 9.6% this year and has held in a
1,570-1,720 trading range since last October.
Volume has been respectable, and the market has been neither overbought nor
oversold since the beginning of the year. Recovery elsewhere and growing demand
for Korean goods also points to further strength.
Young Chang, the head of Korean research at UBS, maintains a forecast of 2,000
by the year's end, according to Bloomberg News, "Valuations are cheap, there'll
be no risk of inflation for a considerable amount of time, and emerging markets
which account for about 70% of the nation’s exports are expected to be in good
shape,” Bloomberg quoted Chang as saying.
The KOSPI is stymied for now by the high 1,600s, where a local minimum in
mid-August 2008 was confirmed as a resistance by a local maximum in
mid-February 2009. Like so many other Asian national equity market averages, it
is navigating an increasingly narrow chart between its 50-day and its 200-day
moving averages (now at 1,645 and 1,571 respectively).
The 100 companies in the KOSPI are trading at the second-lowest
price-to-earnings ratio (10.22) in the Asia-Pacific region, yet the index is
the third-worst performer among emerging markets in Asia this year. according
to data analyzed by Bloomberg.
The banking sector represents 40% of the index; other major sectors are
electronics, shipbuilding, and steel. Given the prominence of the banking
sector, it is not surprising that South Korean mergers and acquisitions played
a role in the country’s growth before the global financial crisis hit and
since. Hewitt Quarterly Asia Pacific reports that in 2007 alone, before the
crisis, Korean companies agreed more than 500 deals worth about $40 billion.
Just last month, Lotte Group is bought GS Retail's department and discount
store operations for close to $1.2 billion. Earlier standout agreements
included Doosan Infracore’s $4.9 billion acquisition of Bobcat (a utility
equipment and attachment business), Eugene Group’s acquisition of Hi Mart for
$2.1 billion, and SK Telecom's $1.2 billion purchase of Hanaro.
South Korean companies have also been targets for foreign acquisition. To name
but two: Tesco bought 36 discount stores from South Korea's E-Land for $1.9
billion in 2008 , and last year eBay acquired the South Korean online
marketplace Gmarket for $1.2 billion.
According to Morgan Stanley executive director Peter Chang, quoted by Bloomberg
News, South Korean banks may "begin to become more open over the next year on
providing acquisition financing for deals" as "improvements in the availability
of financing will also help drive the overall level of M&A activity."
The International Monetary Fund projects that South Korea will rank number
three for economic growth among the world’s 15 largest economies over the next
two years, exceeded only by China and India. This advance would be due to
strength in domestic consumption, and corporate and foreign investment.
South Korea’s exports were down almost 14% in 2009 due to decreased demand from
the developed market economies. The global recovery pushed exports in February
up 31% from the same period a year earlier, the fourth straight monthly
advance, largely due to the electronics sector. Continued recovery in exports
will depend upon the strength of the recovery in Europe and North America. In
the meantime, South Korea will seek to minimize its sensitivity to global
disruptions in developed markets by increasing its now relatively low export
dependence on China and India. As it is, nearly three-fifths of South Korea’s
total trade surplus for the whole of 2009 was generated by exports to China and
Chinese demand is responsible for the turnaround four months ago. Other
emerging markets also drove growth.
At home, consumer prices rose last month at an annualized rate of 2.7%, still
within the central bank’s 2%-4% target range.
Finance Minister Yoon said last week that despite the fact that the country's
economy was "showing signs of a steady improvement in terms of consumer and
business sentiment", "the private sector is not capable of growing on its own
yet", and international uncertainties make it imperative for the government to
continue its policies to ensure macroeconomic stabilization, accompanied by a
strategic initiative to increase research and development investment,
particularly in the service sector.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of Technology and The University of
Michigan, has researched and taught at universities in the United States,
Canada, France, Switzerland, and Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian Studies, Carleton University,
Canada, he also consults privately in a variety of fields. (Copyright
2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us
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