South Korea and Its ETF Look to Overcome Economic Hardship

August 20, 2008 at 6:00 am by Timothy Hubbard

With many symptoms similar to those of the United States’, South Korea and its exchange traded fund (ETF) have been exposed to many of the same problems stemming from the U.S. economic slowdown.

As a credit crisis lingers in the United States, it has sent a shudder through the South Korean market.

Kim Jae-Kyoung for Korea Times reports that with the financial market struggles coinciding with high inflation and an economic slowdown, concerns are growing that Korea may be experiencing a credit crisis stemming from a combination of asset deflation and rising interest rates. Korean banks have aggressively expanded and began to lend recklessly despite stagflationary pressures, making the economy very vulnerable to a credit crisis.

However, household debt in Korea may be the most troubling economic problem. The growth of household debt has risen even faster than that of our own. These debts in Korea have shot up more than 210% from 2001 to 2006, and is currently staring the repurcussions right in the eye.

Despite the threat of a credit crisis and this nation suffering from a weak currency, high fuel costs and an overly indebted consumer, President Lee has a vision and a plan for his country, according to Aaron Task for Yahoo’s Tech Ticker.

On top of the previously mentioned economic problems, South Korea is losing confidence as job growth slows and the country has nearly a 100% reliance on imported energy. This country also faces intensifying competition from China with regards to manufacturing.

In his plans to deal with the economic issues in his country, President Lee believes strongly in deregulation and free trade. Similarly, he has put a high priority on reforming the tax system in place and regulations restricting foreign investment.

In his vision of economic recovery, President Lee plans to lay the ground work for his ambitious 10 year goals, or his 747 Plan. This plan consists of 7% GDP, $40,000 average household income, and emerging as the world’s 7th largest economy.

The iShares MSCI South Korea Index (EWY) is down 26% year-to-date. It’s most heavily allocated in consumer goods (28.9%) and industrial materials (21.1%).