South Korea - Stock Market and Economy

Learning Assignment of Prakash Chuadhuri

2009 forecasts

South Korea's economy shrank a seasonally adjusted 5.6 percent in the fourth quarter of 2008 from the previous three months, suffering its second-biggest economic contraction on record.The Finance Ministry this week cut its GDP growth forecast for 2009 to a fall of 2 percent from a rise of 3 percent, the first official acknowledgement that the economy would contract this year. The IMF has projected a 4 percent contraction

South Korea - Stock Market - 2008

 

18.12.2008 close

 

KOSPI Index

Index		Change		Change %
1175.91		+6.16		+0.53%

 

 

Source:

http://www.indexrecord.com/stock/KOSPI.html

 

 

Econmy 2008

 

South Korean economy may be heading toward negative growth in 2009.

 

There are growing signs that the world's 13^th largest economy, the Republic of Korea, is among the most vulnerable to the global financial crisis.

 

On December 1, 2008, Samsung Securities predicted the economy would shrink by 0.2 percent in 2009, following in the steps of the US, Japan and Europe.  Shin Dong-suk, senior analyst for Samsung Securities, pointed to weak exports as a cause of the downturn, predicting a drop of 6.7 percent due to falling demand, the global credit crunch and general financial distress. The predicted decline in exports is despite a weakening currency, which Shin warned might hit over 1,600 won to the US dollar. Domestic consumption is also expected to be down 3 percent next year.

 

 

For more details

 

http://www.wsws.org/articles/2008/dec2008/kore-d12.shtml

GENERAL INFORMATION

Country Name :  South Korea

Region :  OECD 

Income category : High income

President: Lee Myung-bak

Parliament: Uri Party (152/299 seats in National Assembly)

Next election: December 2012 (presidential)

                        : April 2008 (latest parliamentary election)

Exchange rate: Won/US$ rate - 1388.30   (19 March. 2009)

Interest rates: Target overnight call rate - 5.0% (Feb. 2008)

Inflation: 4.9% (May 2008)

10-year government bond yield - 5.25% (Feb. 2008)

Investment grade rating: A3 (Moodys) , A- (S&P)

Population :   48,553,392 (July 2008 est.)

Population annual growth rate (2008): 0.269%.

Investor Protection Index:  5.3  , Rank - 70 (2009)

GDP

Item	Units	Scale	2004	2005	2006	2007	2008 (Estim- ated)
Gross domestic product, current prices	U.S. dollars	Billions	681.227	791.572	888.443	969.871	953.489
Gross domestic product per capita, current prices	U.S. dollars	Units	14,180.58	16,443.77	18,395.34	20,015.34	19,637.99
Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP	Current international dollar	Billions	957.115	1,027.37	1,114.91	1,201.87	1,278.94
Gross domestic product based on purchasing-power-parity (PPP) per capita GDP	Current international dollar	Units	19,923.53	21,342.23	23,084.46	24,803.05	26,340.99
Population	Persons	Millions	48.039	48.138	48.297	48.456	48.553

 

Source:  http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weorept.aspx?pr.x=44&pr.y=3&sy=2004&ey=2008&scsm=1&ssd=1&sort=country&ds=.&br=1&c=542&s=NGDPD,NGDPDPC,PPPGDP,PPPPC,LP&grp=0&a=#cs1

EASE OF DOING BUSINESS :   Rank : 126  (WORLD BANK REPORT, 2009)

http://www.doingbusiness.org/Documents/CountryProfiles/KOR.pdf

GENERAL STATISTICS

Geography:  Area: 98,480 sq. km. (38,023 sq. mi.)

Work force (2007): 24.22 million. 

Services	75.2%
industry	17.3%
agriculture	7.5%

 

GDP DISTRIBUTION :

Agriculture	3.6%
Industry	36.4%
Services	60 %

 

GDP growth rate:

2004	4.7%
2005	4.2%
2006	5.1%
2007	5.0%

 

Consumer price index:

2004	3.6%
2005	2.8%
2006	2.2%
2007	2.5%.

 

Natural resources: Coal, tungsten, graphite, molybdenum, lead, hydropower potential.

Agriculture, including forestry and fisheries: Products--rice, vegetables, fruit, root crops, barley; cattle, pigs, chickens, milk, eggs, fish. 

Arable land--16.58% of land area.

Industry: Types--Electronics and electrical products, telecommunications, motor vehicles, shipbuilding, mining and manufacturing, petrochemicals, industrial machinery, steel.

Trade (2007): 

Exports--$379 billion f.o.b.: electronic products (semiconductors, cellular phones and equipment, computers), automobiles, machinery and equipment, steel, ships, petrochemicals.

 Imports--$349.6 billion f.o.b.: crude oil, food, machinery and transportation equipment, chemicals and chemical products, base metals and articles. 

Major markets (2007)—

China (25.7%),

U.S. (12.3%),

Japan (6.8%),

Hong Kong (4.5%).

 

Major suppliers (2007)—

China (16.7%),

Japan (16.4%),

U.S. (10.5%),

Saudi Arabia (6.3%),

U.A.E. (4.2%).

 

Source: http://www.state.gov/r/pa/ei/bgn/2800.htm

RISK ANALYSIS :

1.       BUSINESS RISK :  Positively, the government remains committed to tackling corruption, particularly within the chaebol. However, more progress is needed to make the business environment more transparent and market driven. Labour militancy also remains an issue, particularly within the automotive sector, as illustrated by periods of strike activity in 2006. Moreover, a potential escalation in political risk surrounding the North is a key shadow looming over the business environment. 

The country should prove relatively insensitive to the slowdown in 2008 in the United States, which represents only 15 per cent of South Korean exports. In these conditions, the Coface payment experience has generally been good. Large innovative companies continue to post high profits albeit eroded by the won appreciation. Small companies focusing on the domestic market have been weaker.

 

2.       FINANCIAL RISK: Financially, sovereign risk has remained low. Despite the decline of the current account surplus in 2007 and the expected emergence of a deficit in 2008, foreign debt remains limited. Although South Korean banks are sound and profitable, the extent of household debt raises fears of new difficulties should interest rates increase sharply. South Korea's growth momentum will remain intact, although the economy faces several headwinds going forward. While its policymaking capabilities remain constrained, the government will continue to struggle to deal with the many challenges facing the economy, including deflating an emerging housing ‘bubble' and countering the external risks generated by a slowing global economy. 

 

3.      POLITCAL RISK : Lee Myung-Bak leader of the Grand National Party (GNP) won a landslide victory in the December 2007 presidential elections and is the country’s first president from a corporate background. The former Hyundai executive received very strong support on the back of promises to revitalise Korea’s economy. He has promised to boost annual growth by 7%, boost per capita incomes to US$40,000 by 2017 and make South Korea one of the world’s seven largest economies. These goals are lofty and it is far from clear whether he wil succeed. Parliamentary elections will take place on 9th April 2008 and the GNP is expected to be the clear victor. But shoul dthey fall short of their aims, then. clearly the opposition parties will make a comeback.

 

 

 

Source:  http://countries.bridgat.com/South_Korea.html

              www.lloydstsb.com/corporatemarkets

INFLATION: EXPECTED CHANGE AND VOLATALITY

Consumer price inflation is expected to pick up in 2008, to average 3.3% but is forecast to remain within the central bank target of 2.5-3.5%. However, an increase in food prices – primarily fresh vegetables as a result of poor weather during the growing season – and high international oil prices will add upward pressures to inflation. Inflation is expected to fall in 2009 to 2.7% as the won appreciates.

 

 

GENRAL ECONOMIC INFLUENCES

The South Korean economy expanded  by 5.0% in 2007, the fastest pace in two years drivenby robust export growth and strong business investment. However, weaker domestic demand and a fall  in industrial production will slow economic growth to 4.8% in 2008. Exports, which make up 40% of the economy, are forecast to moderate amid a weaker global economy but strong growth from other Asian countries will sustain export growth at double digit rates, despite the appreciation of the won. Consumer spending is expected to remain firm over the forecast period reflecting strong household incomes and falling unemployment - which is currently at a 5 year low of 3.3%. The current account surplus is forecast to narrow to 0.1% of gdp in 2008.

 

 

FOREIGN  REAL  RRFR   (19 march 2009)

( RRFR: Real Risk Free Rate of Return )

5-yr treasury bonds	4.15 pct
3-yr treasury bonds	3.49 pct
1-yr monetary stabilisation bonds	2.63 pct
3-mth certificates of deposit	2.43 pct
Average call rate	1.87 pct
6-mth *KORIBOR	2.63 pct

                                          

For Dividends Of Major Industries of South Korea :

Source:  http://www.forbes.com/feeds/afx/2009/03/19/afx6186300.html

http://www.reuters.com/article/marketsNews/idINSEO37344320090319?rpc=611

 

ESTIMATING DIVIDEND GROWTH FOR FOREIGN STOCKS

http://www.moneymorning.com/2008/06/11/six-ways-to-capitalize-on-koreas-growing-global-muscle/

http://www.marketoracle.co.uk/Article5036.html

POPULATION & EMPLOYMENT INDEX

 

Work force (2007): 24.22 million. 

Services	75.2%
industry	17.3%
agriculture	7.5%

 

EMPLOYMENT DISTRIBUTION :

Agriculture	3.6%
Industry	36.4%
Services	60 %

 

Unemployment rate:	3.2% (2008 est.)
Population:	48,379,392 (July 2008 est.)
Age structure:	0-14 years: 17.4% (male 4,431,315/female 4,004,810)  15-64 years: 72% (male 17,760,975/female 17,095,436)  65 years and over: 10.5% (male 2,030,931/female 3,055,925) (2008 est.)
Median age:	total: 36.7 years  male: 35.5 years  female: 37.9 years (2008 est.)
Population growth rate:	0.269% (2008 est.)
Birth rate:	9.09 births/1,000 population (2008 est.)
Death rate:	5.73 deaths/1,000 population (2008 est.)

 

Source:  https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html

 

GROWTH IN INDUSTRIAL PRODUCTION

Annual % change	2007	2008f	2009f	2010f
Gdp growth	5.0	4.8	4.8	4.6
Industrial production	8.2	6.2	5.9	5.5

 

INTEREST RATES & FOREIGN EXCHANGE:

The South Korean central bank slashed interest rates by half a percentage point to a record low of 2 percent on Thursday, the sixth cut in four months.The Bank of Korea has now cut interest rates by a total of 3.25 percentage points since early October, including an unprecedented 1 percentage point reduction in December.

 

STCOK MARKET PERFORMANCE

The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The Index was developed with a base value of 100 as of January 4th, 1980

http://www.bloomberg.com/apps/quote?ticker=KOSPI:IND

Period: 24.07.2006 - 31.12.2008

 

http://us.ishares.com/content/stream.jsp?url=/content/repository/material/fact_sheet/ewy.pdf&mimeType=application/pdf

STRENGTHS

• South Korea boasts a diversified industrial base, competitive in new technologies and the automotive industry.
• In electronics, the country is the quality leader.
• The degree of penetration of high technology in the domestic market is among the highest in the world with the country ranked fourth in the world for its broadband Internet penetration rate.
• An effective education system underpins a highly skilled labour force.
• In terms of the number of patents held, South Korea ranks fourth in the world, after Japan, the United States, and China, thanks particularly to high public R&D spending.
• South Koreans have broadened the geographic scope of their investments with China, Vietnam, and India becoming preferred destinations.

WEAKNESSES

• The won appreciation has considerably undermined the performance of low value-added companies.
• South Korea is still a net beneficiary of foreign direct investment flows particularly in services, the main weakness of the South Korean economy.
• The steel and textile sectors have suffered from Chinese competition.
• As the fourth largest world oil importer, the country is very dependent on raw materials.
• Households and small companies have been carrying too much debt.
• The ageing of the population constitutes a risk for public sector finances.
• The unpredictability of the North Korean regime has weighed on South Korea's geopolitical environment.

Source :   http://countries.bridgat.com/South_Korea.html

 

For  Further and Exclusive Business Forecast Report South Korea

http://www.bharatbook.com/Market-Research-Reports/Business-Forecast-Report-South-Korea.html

For Further  Geographical and Demographic Details of South Korea:

https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html

Original Knol - Knol Number 604