South Korean ETF Down, Tax Cuts Aim for Recovery

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The iShares MSCI South Korea (NYSEARCA:EWS) is down 7% Wednesday even as its legislature cuts taxes to drum up some economic growth and boost consumption.

The South Korean finance ministry announced it would cut taxes on personal income and small businesses and eliminate some property taxes to provide taxpayers with Won21,300bn of tax benefits over the next four years.

As oil prices have fallen 28% from this year's high, the consumer price index rose at a lower rate than expected in July boosting the hand of the growth hawks.

South Korea reported a 36% growth in exports in July and a 21% growth in August but imports jumped 37% on oil and raw materials costs, resulting in a trade deficit of $3.2 billion, the biggest shortfall in seven months.

The South Korean won has lost 14% against the dollar this year falling below Won1,100 per dollar yesterday for the first time in almost four years. The UK's Guardian reports puzzlement over South Korea's lack of intervention in currency markets given its ample $243 billion in fx reserves. The trade data also crushed investor appetites, slamming the Kospi stock index to its lowest since March 2007.

The tax changes will lower personal income rates to between 6 and 33% from 8 to 35% by 2010 while also cutting inheritance tax rates.

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