How Will South Korean Election Affect Its Economy?

It is a foregone conclusion that Mr. Lee Myung-bak, the former Mayor of Seoul and construction magnate is going to win South Korea’s presidential election on December 19th. The question is what does this mean for the Korean economy and the iShares MSCI South Korea exchange-traded fund? (EWY)

Given his pro-business, tax cutting agenda, the election of Mr. Lee is likely to be perceived as a plus for the Korean stock market which has been one of the best performers this year.

But the country is unsettled and apprehensive about economic prospects. Squeezed between, Japan, China and Russia, it lacks the confidence and security to fully embrace a market economy. Labor and real estate values have risen to uncomfortable levels. It’s growth rate has slipped a bit and while a 4.5% average annual growth rate is nothing to sneeze at, faster growing countries like Brazil and India have pushed the country back from the 11th- largest economy in the world to the 13th slot. In short, it needs some mojo.

Together, Samsung, POSCO, KEPCO (Korea Electric Power) and SK Telecom account for almost 50% of South Korean stock market’s market capitalization and roughly the same proportion in the basket of South Korean companies that are contained in the MSCI iShares South Korean ETF EWY.

Over the past 52 weeks, EWY has moved from $45 to $75 but has pulled back to $65.