Investing in South Korea

South Korea’s status today is a far cry from where it was in the fall of 1997, when the Korea's currency — the won — sank against the dollar and the nation was at the door of the International Monetary Fund seeking a $57 billion loan.

But that financial crisis, which started in Asia but affected the global community, was a turning point. It exposed the weakness of Korea’s financial systems and corporate structures. And government officials and corporate executives quickly learned from their mistakes.

This special report on investing in South Korea will look at the nation’s economy today, and how a build-up in foreign exchange reserves, as well as a stronger financial system and fiscal spending, have left the country in better shape to withstand the current global turmoil.

That might not be evident in the Korean Composite Stock Market (Kospi), which has had a roller coaster ride of a year thanks to the global turmoil triggered by continuing debt problems in Europe and — of particular interest to Korea’s exporters — a slowdown in China. But analysts generally expect the Kospi to recover before the end of the year, in part from policies in China to stimulate growth.

Investing in Korea can take some skill, however. The country has exposure to export-driven industries and large numbers of foreign investors and is dominated by large family-run conglomerates, all factors that lead to high volatility.



Most investors know Korea for its information technology companies and auto industries. But Korea’s big exporters also include materials and industrial goods makers, as well as refiners and shipbuilders.

The nation also has an emerging class of stocks that are making inroads as exporters, including smaller companies that support the auto and information technology businesses, and consumer goods companies.

While these smaller companies may be raising their profiles, the country remains dominated by the chaebols, Korea’s family-run, multi-national conglomerates. The chaebols include Korea’s best-known brand names, such as Samsung , Hyundai , and LG Electronics. That’s unlikely to change anytime soon, but the chaebols are under increasing pressure to become more transparent and accountable, and many already have.

One issue that adds a bit of volatility to South Korea — but not as much as investors might think — is the uncertainty posed by North Korea. The death of Kim Jong-il in December, and the ascension of his son, Kim Jong-un, has thrown North Korea into a new state of flux, and it remains unclear how this will affect its neighbor.

North and South Korea appeared on the verge of war on Friday night after Kim Jong-un issued an ultimatum to Seoul to halt anti-Pyongyang propaganda broadcasts by Saturday afternoon or face military action.

Pyongyang ordered its military to full combat readiness as Kim Jong-un, the North Korean leader, declared a “quasi-state of war” after an exchange of gunfire across the border on Thursday .

The North also issued a 48-hour ultimatum to Seoul, announcing that it would conduct “military operations to destroy” the loudspeakers being used to broadcast propaganda across the border into North Korea.

Seoul has until 5pm on Saturday (10am GMT) to comply.

Monitoring of the North’s weapons indicate that a mobile Scud-C launcher is on the move close to Wonsan, situated on the east coast and about 60 miles north of the Demilitarised Zone that separates the two countries. The missile has a range of more than 300 miles.

The second missile identified by radar operated by South Korean and US forces is a Rodong. The weapon is operating in North Pyongan Province, on the north-west border with China and has an operational range of nearly 750 miles.

“It seems [North Korea] is weighing the timing of firing the weapons as part of its strategic intention to increase military tension on the Korean peninsula to the highest level,” a government source told Yonhap news.

South Korea has responded by putting its own forces on the highest level of alert. Park Gueh-hye, the South Korean president, has ordered the military to retaliate forcefully against any provocations from the North.

“We can never tolerate any North Korean provocations that could endanger the safety of our soldiers and people,” said Mrs Park, who wore combat fatigues during an unannounced visit to the headquarters of the Third Army near Seoul.

While clashes and confrontations are a frequent occurrence on the border between the two nations, analysts suggest the situation is on this occasion more critical.

“Nobody knows what will happen when the deadline expires, but I get the feeling that this situation is more grave than previously,” Rah Jong-yil, a former head of South Korean intelligence, told The Telegraph.

“There is a joint US-South Korean military exercise going on at the moment and, from my own experience, North Korea used to adopt a defensive posture on these occasions,” he said. “But now they are on the offensive, and that is disturbing to me.

“There are countless ways in which the North can militarily provoke the South and the US, while we have no choice but to remain on the defensive.

“North Korea can choose the time, the place and the method by which they can provoke us, and all we can do is to remain watchful.”

Mr Rah admitted that North Korea’s deadline has placed Seoul in “a difficult position”. He added: “North Korea has served us a warning that it will attack us if the broadcasts are not stopped at 5pm, but from the South’s position, we have no choice but to continue the broadcasts. This is very worrying and I do not see how this can be resolved.”

North Korea is keeping up the propaganda war, with the state-run Korea Central News Agency accusing the South of starting the exchange of artillery, describing it as “a serious military provocation that can never be pardoned”.

It added: “A short while ago, the puppet war maniacs resumed psychological warfare broadcasts along all sectors of the front under the doubtful pretext of the explosion of a landmine. Today, they fired shells en masse into the territory of the Democratic People’s Republic of Korea (DPRK), based on no firm evidence,” KCNA reported. “All of these actions have been prompted by the insane desire of the South Korean military’s war maniacs for provocation.”

An unofficial spokesman for the regime in Pyongyang told The Telegraph North Korea will have no compunction in attacking the South if its demands are not met by the deadline.

“If the loudspeakers are still in place at 5pm, then the North will attack with artillery, from the air and with land forces,” said Kim Myong-chol, executive director of The Centre for North Korea-US Peace and a close former associate of Kim Jong-il, the late North Korean leader and father of Kim Jong-un. “What happens after that depends on the reaction of South Korea and the US,” he said. “The North does not want a war, but South Korea and the US want war. So we will destroy their forces in an instant.”

Asked how the destruction of all the South Korean and US forces stationed south of the Demilitarised Zone might be achieved, Mr Kim said the North is ready to use its nuclear weapons.

“It depends on the situation and the reactions of South Korea and the US, but it could be a nuclear war,” he said. “The choice is up to the Americans”.

The US military, which bases 28,500 personnel in South Korea, said it was monitoring the situation.

Washington earlier urged Pyongyang to halt “provocative” actions after Thursday’s exchange of fire, the first between the two Koreas since October.

Daniel Pinkston, of the International Crisis Group. a think tank, said the large US troop presence in the South for the military exercises could reduce the risk of escalation by pressuring the South to exercise restraint, and as a deterrent to the North.

US troops in Humvees were seen in the South Korean town of Paju bordering North Korea on Thursday afternoon.

“This is a bad time to pick a fight with the South while it has all these resources there,” he said.

This is the Samsung ( One of S. Korea's best companies ) daily chart. Maybe too late to short already