South Korean economy

The South Korean (EWY) economy is currently affected by security threats from North Korea and several chaebols, or family-controlled companies. Samsung Electronics (SSNLF) (HYMLF), a chaebol, has been involved in a corruption scandal, like companies in many other emerging markets. However, on a positive note, most macroeconomic factors look promising thanks to new president Moon Jae-in taking office in May.

South Korea’s Economic Growth amid Geopolitical Tensions

Economic growth in South Korea

As shown in the above chart, the South Korean economy grew 0.9% in 1Q17, outpacing estimates of a 0.7% growth. The quarter’s preliminary results have also surpassed the 0.5% growth seen in the previous two quarters. GDP growth is at the highest level seen since 2Q16. YoY (year-over-year), the South Korean economy grew 2.7% in 1Q17, compared with 2.4% in the previous quarter.

In 1Q17, GDP growth was mainly driven by improvements in the construction, agriculture, and manufacturing sectors. However, the service and utility spaces’ performance was slightly down. Economic activity in South Korea has expanded more quickly than expected, as global (ACWI) (VT) economic recovery gains traction. Exports continue to be robust with higher investments in facilities. Government spending increased to 56.2 trillion South Korean won in 1Q17, compared with 55.9 trillion won in 4Q16. South Korea’s GDP grew 2.7% YoY in 2016, compared with 0.1% in 2015, mainly due to increased government spending and private investments.

Investments

South Korea’s benchmark index, the KOSPI (Korea Composite Stock Price Index), has gained about 16% so far in 2017. Samsung Electronics (SSNFY), which comprises more than 20% of the KOSPI, has risen ~30%. The iShares MSCI South Korea Capped ETF (EWY) has gained ~29%. In the next part of this series, let’s look at inflation trends in South Korea over the last year.

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