Korea Beating Japan as Won Buoys Nation Led by Hyundai to No. 3 – Bloomberg.com Updated:New York, Dec 10 21:17London, Dec 11 02:17Tokyo, Dec 11 11:17 SYMBOL LOOKUP Ed Hardy HoodyFEEDBACKHOMENEWSEXCLUSIVEWORLDWIDEREGIONSMARKETSINDUSTRIESECONOMYPOLITICSLAWENVIRONMENTSCIENCEOPINIONSPENDSPORTSARTS AND CULTUREEDITORS’ VIDEO PICKSBLOOMBERG MARKETS MAGAZINESPECIAL REPORTMARKET DATASTOCKSRATES & BONDSCURRENCIESMUTUAL FUNDSETFsCOMMODITIESECONOMIC CALENDARPERSONAL FINANCEJANE BRYANT QUINNJOHN DORFMANPORTFOLIO TRACKERCALCULATORSFINANCIAL GLOSSARYTV and RADIOBLOOMBERG TELEVISIONBLOOMBERG TELEVISION SYNDICATED REPORTSBLOOMBERG RADIOBLOOMBERG PODCASTSBLOOMBERG SHOWSCEO SPOTLIGHTCFO INSIGHTPORTFOLIO MATTERSMOBILEBUSINESSWEEKBUSINESS EXCHANGEBloomberg InnovatorsTechnologyCurrenciesForex Trading VideosETFsCEOCommoditiesExclusiveWorldwideRegionsMarketsIndustriesEconomyPoliticsLawEnvironmentScienceOpinionSpendSportsArts and CultureEditors’ Video PicksBloomberg Markets MagazineSpecial ReportRESOURCES Bloomberg TV Bloomberg Radio Bloomberg PodcastsBloomberg Press More News • Gundlach Turmoil May Delay Societe Generale’s Plans for TCW Spinoff or IPO • GM’s Buick-GMC Chief Said to Leave Automaker Eight Days After Being Hired • AstraZeneca Explores Alliances With Competitors to Spread Expense, Risks Korea Beating Japan as Won Buoys Nation Led by Hyundai to No. 3 Share Business ExchangeTwitterFacebook| Email | Print |A A A By Seyoon Kim and Saeromi Shin Dec. 10 (Bloomberg) — Yoon Sung Duk says people called him“crazy” when he expanded his factory just as the financialcrisis hit South Korea. His decision helps explain why thenation is at the forefront of the global recovery. “We told ourselves there will be a tsunami of orders oncethe global recession is over,” says Yoon, president of pipe-materials maker TK Corp., which spent the equivalent of morethan 10 percent of its annual sales on the plant expansion. South Korea’s growth will outpace all but China and Indiaamong the world’s 15 largest economies over the next two years,according to the International Monetary Fund. The won’s 20percent decline against the dollar since 2007, a period when theyen soared 27 percent, has helped Korean companies boost exportsand spending. Hyundai Motor Co., the nation’s biggest automaker,and LG Chem Ltd., the top Korean chemical maker, will benefit asthe expansion accelerates, said Henry Seggerman, president ofNew York-based International Investment Advisers. “Korean manufacturers will perform well as the worldwiderecovery unfolds,” says Seggerman, whose Korea InternationalInvestment Fund has climbed 30 percent in the past six months,beating the 27 percent rise in the country’s KOSPI index, andthe 17 percent gain for the MSCI Asia Pacific Index, calculatedin dollars. South Korean capital investment rose 10.4 percent in thethird quarter, central bank data show. By comparison, Japanesecapital spending tumbled a record 26 percent, according to theFinance Ministry. In crisis-hit 2008, Korean spending slipped 2percent, compared with a 37 percent cut by Japanese companies inthe year to March 2009. The state-run Korea DevelopmentInstitute forecasts investment will surge 17 percent next year. Outpacing Rivals The IMF, in its semiannual projections released in October,forecasts an average annual economic expansion rate of 4.6percent over the next five years, compared with 2 percent inJapan and 2.3 percent in advanced economies as a group. Whilebehind China and India in the pace of growth, South Korea’s per-capita GDP is an estimated $16,400 this year, more than fourtimes China’s and about 16 times India’s. South Korea is benefiting from less reliance on overseasshipments to the developed nations that bore the brunt of theglobal recession — 71 percent of exports this year are toemerging nations, up from 49 percent in 2000. The exchange ratehas also helped, as the won fell 20 percent versus the dollar inthe past two years, a period when the yen soared 25 percent. ‘Undervalued’ Won The won’s depreciation has left it “undervalued,” andgains next year will give South Korean stocks an “extraboost,” Seggerman says. He recommended the shares of Hyundaiand LG Chem, which both have Seoul headquarters, and Incheon-based Hyundai Steel Co., the No. 2 steelmaker in the country. He also favors so-called small-cap shares including Ulsan-based Duksan Hi-Metal Co., which makes components used toconnect semiconductors, Daegu-based L&F Co., a producer ofmaterials for notebook rechargeable batteries, and Hwasung’sDigitech Systems Co., a specialist in touchscreen displays. Bets by manufacturers like Busan-based TK helped SouthKorea’s $929 billion economy accelerate. Gross domestic productrose 3.2 percent in the third quarter from the previous threemonths,Ed Hardy Men Long T-Shirts the fastest pace in seven years. “A virtuous cycle has been created where a weaker wonboosted manufacturers’ market share and brand value, and theensuing rise in sales enabled more investment to ensurequality,” says Chang In Whan, president of KTB Asset ManagementCo., which manages about $8.5 billion in assets in Seoul. Stock Picks “I like companies like Samsung Electronics Co., LG DisplayCo., LG Electronics Inc. and Hyundai Mobis Co.,” Chang says. The won, which slid 26 percent last year, traded at1,165.42 per dollar at 7:33 a.m. in New York. Suwon-based Samsung, Asia’s biggest maker of chips, flatscreens and mobile phones, said in October profit tripled to aquarterly record and Seoul-based LG Electronics reportedearnings that beat analysts’ estimates. Samsung has climbed 72percent and LG 56 percent this year. The economy has been aided by the monetary and fiscalpolicy response following the collapse of Lehman BrothersHoldings Inc. President Lee Myung Bak increased spending andaccelerated budget outlays to the first half of the year and thecentral bank cut the benchmark interest rate to a record-low 2percent. “Korea’s economic and financial fundamentals are admirablystrong,” says Barry Eichengreen, a former senior policy adviserat the IMF who now teaches at the University of California atBerkeley. Growth may average 4 percent to 5 percent a year inthe coming half-decade as long as the world economy remainsstable, he says. Rate Decision Bank of Korea Governor Lee Seong Tae said today the centralbank shouldn’t wait too long before gradually raising borrowingcosts provided that the recovery maintains momentum. “Saying monetary policy will for some time focus onreviving the economy doesn’t mean rates won’t move,” Lee saidafter leaving the seven-day repurchase rate at 2 percent.Maintaining borrowing costs at that level a year from now wouldbe “unimaginable” if the economy keeps growing more than 1percent each quarter, he said. The won was little changed at 1,162.25 per U.S. dollar asof 12:22 p.m. in Seoul, trading near a one-week low. President Lee in January created an economic “situationroom” at the presidential Blue House to oversee weekly meetingsof top policy makers. Four teams comprised of officials from 11ministries work out of the underground bunker to monitorfinancial and economic developments. Approval Rating The recovery helped lift Lee’s approval rating to 38.6percent, according to a Nov. 23-27 survey conducted by Seoul-based Real Meter, from a record-low 16.9 percent in June 2008.Lee faces regional elections in June next year. The economic backdrop to that vote may not be as strong asLee would like due to potential risks next year, says FredericNeumann, a Hong Kong-based economist at HSBC Holdings Plc. “If the Korean won continues to appreciate and globaldemand doesn’t pick up strongly then Korea will be left holdingthe bag,” Neumann says. “The Korean economy is still veryexport dependent and a reduction in overseas shipments wouldconstrain growth.” Exports make up about half the nation’s GDP. South Korea’s recent productivity increases should meanexports can withstand the impact of a strengthening currency,says Uwe Parpart, chief Asia strategist at Cantor Fitzgerald LPin Hong Kong. The labor productivity index climbed to 122.7 inthe three months through June, the second straight increase,according to the country’s Knowledge Economy Ministry. “If you invest in Korean stocks at 1,150 to the dollar andthe won goes to 1,000 you don’t need to gain too much fromstocks to make a lot of money,” he says. Rising Sales TK Corp. anticipates its fourth-quarter sales will riseabout 40 percent to 70 billion won ($60 million). It suppliespiping materials for petrochemical factories at companiesincluding San Francisco-based Bechtel Group Inc. andSnamprogetti SpA, the Milan-based engineering unit of Italy’sstate energy company, Eni SpA. TK opened an office in Beijing in September to tap theworld’s fastest growing major economy, says TK’s Yoon. “We have to get ready for the good times when things arebad,” Yoon says. “I thought the crisis would be anotheropportunity to the next phase once the demand picks up.” To contact the reporters on this story:Seyoon Kim in Seoul at skim7@bloomberg.Ed Men Long T-Shirtsnet;Saeromi Shin in Seoul at sshin15@bloomberg.net Last Updated: December 10, 2009 07:37 EST
