Our Opinion: 2014

Won rising….

South Korea’ s currency – the Won – has risen to a six-year high of 1,020 to the US Dollar, and over half a billion dollars of local stocks were bought in the market in the last week of May alone.

As economies in the West start to build momentum, Asia’s more export-driven markets are in the limelight again. In Korea, exports make up half of GDP and highly exposed to improving global growth. Its own growth is expected to accelerate over the next two years. The Central Bank expects this to be 4% growth this year, compared to last year’s 3%, thanks to recoveries in Europe and America. Exports grew 9% year-on-year in April, the fastest pace in 18 months.

When the Won rises, there are obvious fears that exports become less competitive and dampen the appeal of this crucial sector. But Korea’s highly competitive exporters – such as Samsung and Hyundai – have actually increased their market share.

Currency appreciation has not adversely affected export growth in the past. The currency grew a third against the Dollar between 2002 and 2007, yet export growth averaged 16.5% a year.

The domestic outlook is also encouraging with consumer confidence close to a three-year high. Government initiatives have been launched to help small and medium sized businesses. That growing entrepreneurial spirit helps these smaller companies compete effectively against the big companies, which dominate the market.

All this supports the equity market and many fund managers focusing on Asia are increasing their exposure to Korea. Definitely one to watch in the rest of 2014…