Profiting From South Korea's Improving Economic Time

Includes: EWY, PKX
by: Enzio von Pfeil

When we updated Korea's Economic Clock last month, we noted:

Korea's Economic Time may still be all right, but caveat emptor! Perhaps for political reasons, the unpopular government wants to re-kindle growth by running a deliberately growth-friendly policy mix. If that can boost growth without fanning inflation, then investors in Korea will be the big winner. So: once market convulsions are over with, load up on Korea - but keep in liquid stocks as The Economic Time may get a little erratic.

Last week's news on 1Q07 GDP was encouraging. But how do you make money off this information?

Last Thursday, Korea's Central Bank, the Bank of Korea (BoK) said that 1Q07's GDP grew by an annual four percent.

Key motors were exports, up a strong 11%, and consumption, which grew the strongest in two years. Within the framework of our Economic Clock, this suggests that Korea's excess supply of goods is diminishing. Traditionally, that has boded well for profits, courtesy of the prospect of stronger turnover.

The interesting point is that the BoK stated that it is exports which lifted household spending. In other words, strong export orders boosted jobs and thus income security in major Korean sectors.

Encouragingly, the BoK added that it expects growth to accelerate in 2H07, suggesting a healthier profit outlook.

So how do Korean exports prosper if America's Economic Time is worsening? Because of stronger demand from Asia and Europe. This means that America's importance to Korea's growth is diminishing - even if one would be reckless to neglect America!

How to Make Money off this Information
Here are some companies whose exports have prospered off more European and Asian demand:

• Posco (NYSE:PKX): sales of steel were strong
• Samsung Heavy Industries: sales of ships remain robust due to more global trade