Korean unemployment dropped to 3.2% in March, versus a consensus number of 3.3%.
The newly released South Korean unemployment numbers are not meaningful, for two key reasons:
Glimpse of hope
South Korea’s PMI was among the strongest readings for March in emerging markets signaling an expansion of the economy. The jump to a value above 50 was welcomed after two months below the 50 point neutral growth line.
Another positive factor that may be revealed tonight is a cut in interest rates by the Bank of Korea, which will hold its monetary policy meeting today. If rates are cut, it may help boost growth, though it could cause depreciation of the Korea Won, which would hurt returns for foreign investors.
The region is experiencing great momentum led by China, though Japan’s steep depreciation of the Yen has led to increased price competitiveness against Korean companies. In the short term the direction may be uncertain, though in the medium to long term it is likely that Korea will return to a recovery path in line with the rest of the region.
The cut in interest rates in South Korea, along with the recent announcement of $15.3 billion in fiscal stimulus could help lower unemployment further, without dropping labor force participation. This would be positive for the iShares MSCI South Korea Index ETF (EWY), the iShares MSCI Emerging Markets Index ETF (EEM), and the Vanguard MSCI Emerging Markets ETF (VWO).
© 2013 Market Realist, Inc.
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