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Permalink Reply by Robert Eberenz on July 17, 2010 at 7:25am

This week's report raises the question of whether Korea is leading or following on the path to recovery, when compared to its rival Asian Tigers (Hong Kong, Singapore, Taiwan), and what the best course may be. Korea's policy looks to be currency value protection, while Singapore is comfortable with using currency revaluation as its main monetary tool, and Hong Kong is planning to hike it's manually fixed mortgage rates to keep the strong recovery from becoming "too strong".

I'd like to raise several questions for discussion to be answered with (or without) reference to this week's Korea Econ Slice...

1.) Has Korea led or followed it's Asian Tiger rivals on the path towards a sustained recovery? How or why?

2.) Asia's four "Tigers" have all rebounded with gusto from the recent recession, some clocking high double digit GDP growth. Is Korea in the best strategic position moving forward, with 2010 forecasts near 5% rather than high double digits as in Singapore and Hong Kong?

3.) With high growth rates already "baked in" to the KOSPI and other Asian stock markets, what will the next six months look like for the Korean stock market and the markets of its peers?

4.) What will be the most important factors contributing to the success or failure of Asia, and specifically the Republic of Korea?

Permalink Reply by Steven S. Bammel on July 19, 2010 at 7:26am

You mentioned that the Korean economy is growing a bit more slowly now than other Asian Tigers, but if I recall, that follows last year when Korea grew faster than everyone else. Wouldn't you say that Korea has just adjusted down to a more sustainable level earlier than the others?

Also, your report mentions that the other Asian Tiger currencies have appreciated versus the Korean won lately. Am I right in getting the message that all major the Asian economies are pushing for currency appreciation going forward, including China?

Permalink Reply by Robert Eberenz on July 21, 2010 at 1:54pm

Steven, I think you're spot on with your assessment of the Korean economy as a regional success story, when it comes to solid sustainable growth rates. A 5% level of overall economic growth is definitely not in the bubbly unsustainable territory that Singapore and others have been seeing. There will be a slow down in the second half of 2010 due to stimulus measures peaking and beginning to pull back across the globe, but Korea's valuations are much more comfortable for handicappers to work with, even in the event of a downturn later on.

It is also correct that all of the currencies mentioned in the article are headed towards higher valuations relative to their Western peers, as a result of recent messages from their central banks and government policy, China's currency will be moving higher, but most likely at a slower pace than the Asian tigers who have less controlled currency exchange policy.

It will be interesting to see which currencies move higher faster. There is a certain risk to investing in extreme growth story economies, and we may see more dollars flowing into Korean stocks which are relatively more stable in their growth trajectory. What seems certain moving forward is that the Korean Won will find itself in a much more industrialized growth pattern compared to its peers, given the extreme growth levels in other Asian tigers which are unsustainable and tied to economies which have relatively smaller populations of domestic consumers and are potentially more dependent on the growth of foreign economies (most notably China).

I look forward to getting some more feedback from other members of KBC on this issue...

Thanks for you input!