(By Martin Hutchinson) Which global economy grew at an annual rate of 11% in the second
quarter, and will report a second-consecutive double-digit advance when
it reports on Monday?
Hint: It isn't China.
But you are looking in the correct part of the world.
The economy in question is South Korea, which has enjoyed an
astonishing rebound since it reached a recessionary bottom last winter.
One factor in particular should nurture this rebound: The Korean
economy wasn't pulled down by the U.S.-led subprime mortgage crisis,
which infected many foreign banks that invested in mortgage-backed
securities – the Asian Tiger was pole-axed by a collapse in world trade
in the first three months of this year.
At the nadir in March, South Korean exports were down 40% from the
same point in 2008. The banking system also had a liquidity crisis that
required a government bailout – not because of investments in toxic
U.S. derivatives, but because of similarly lackluster credit card loans
and dodgy mortgage rubbish of its own.
The South Korean won
declined by 40% against the dollar during the 12-month-stretch that
ended in February. It has since recovered about half that drop, so it
remains undervalued.
But the overall outlook is highly upbeat. From its low point in December 2008, the Korea Composite Stock Price Index
(KOSPI) is up 65%. Exports have recovered, particularly on the back of
surging demand from China – a trading partner that is growing a bit
more slowly than Korea, but that has considerably more muscle with 27
times the population.
Korea's current account balance once again shows a healthy surplus. Credit-rater Fitch Ratings Inc., which had placed Korea on "credit watch" for a possible downgrade from it's A+ rating, recently announced that the downgrade would be unnecessary, and said that Korea could expect to run a budget surplus in 2011.
That demonstrates Korea's true investment allure: The country is
well run. It elected a pro-business government led by President Lee Myung-bak
in the beginning of 2008 (Lee's term lasts until 2013), and that
government has coped pretty well with the global financial crisis.
Since its trade agreement with the United States is on indefinite
"hold" in the Congress of U.S.
