While the South Korean economy will eventually fall victim to its self-induced demographic vacuum… that development is many years out (as Rodney says above).
Today, the South Korean economy is growing at rates above the global average and its stock market is in a multi-year uptrend.
Take a look at the KOSPI Composite Index, the most-eyed measure of South Korean stocks.
The S&P500 peaked in 2008 and has yet to fully recover, let alone make new highs. You can see this in the red line above. Yet most mainstream news channels tout the U.S. recovery as far stronger than any other nations’.
But if you look at South Korea’s market, you have to wonder why investors seem bent on looking only inside the U.S. for profitable investments.
The KOSPI peaked in 2008 as all global markets turnrned down. But it came back much stronger in 2010 and 2011, trading decisively above its previous 2008 peak. This market pulled back in 2011 and made only modest gains of about 6.5% in 2012.
If the risk-on environment prevails in 2013 I expect many South Korean stocks to do well, as investors eye the above-average growth in Asia in hopes for above-average returnrns.
But 2013 won’t be a breeze for global stocks. With many economic headwinds still facing us, the risk-off environment could reemerge in short notice. We’re expecting the first half of 2013 to be relatively strong, but the second half looks more troubling.
You’ll want to steer clear of South Korean stocks at any hint of a downturnrn.
If you haven’t done so already read the Survive & Prosperissue on “Demographic Trends show South Korea is Shrinking.”