South Korean economy may be slowing, but it’s not all bad news
The South Korean economy’s ( EWY , quote ) industrial output growth slowed to 0.5% for the month of April, according to data released this week. With output slowing in the export-driven country, how should investors approach South Korea?
Like many other export-dependent Asian nations, the crisis in Europe has not been kind to Korean markets . As global demand continues to soften, growth in the South Korean economy will likely slow.
The OECD sees South Korean growth slowing to 3.3% this year, down from 3.6% in 2011, but picking up to 4% in 2013.
Although growth may be slowing, South Korea has outperformed its emerging market peers over the past three months since woes in the euro zone crisis came back with a vengeance. EWY is down only 12%, whereas the Brazilian ETF ( EWZ , quote ) and the Indian ETF ( INDY , quote ) are down 26% and 20%, respectively.
If you remove the health of the global economy from the equation, the South Korean economy is actually not in particularly bad shape.
The economy doesn’t suffer some of the key problems that struggling emerging markets such as India face, such as persistently high inflation or a large current account deficit. As a result, once global demand begins to rebound, South Korea could be a great proxy for the resurgence.
So you should be cognizant of a number of catalysts that could spark the South Korean economy.
Further announcements from the Chinese government about economic stimulus will in all likelihood bolster the South Korean economy as China is one of its largest trading partners.
As South Korea is a net importer of oil, sustained lower prices in crude will also substantially benefit its economy.
Finally, a resolution to the fiscal crisis in Europe would very likely see sustained global demand return, which would naturally help an export-driven economy like South Korea’s.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.