While there’s now relief in the boardrooms of Seoul, the resolution of this legal mess will be an enormous liberating force to Korean businesses themselves, which for the first time in a decade will now be able to focus properly on international expansion, without top management worrying about a 4 a.m. wakeup call from the local constabulary.

Real Economic Muscle

Korea’s growth remains strong, with the economy posting a year-over-year gain of 5.8% in the first quarter. The panel of experts at The Economist expects economic growth of only 4.5% in 2008 and 4.3% in 2009. But given the vibrancy of Korea’s exports and its 10.0% April increase in industrial production, those projections are almost certainly much too low (The Economist experts may not have taken full account of the effect of better government policies).

Needless to say, when the “experts” appear too bearish on a particular market or economy, there’s a very good chance that country’s stock market is undervalued!

Only inflation - at 4.9% in the year to May 2008 - is a worry. But the combination of the weak won and surging global commodity prices are sufficient to easily explain this without suggesting that Korea needs radical monetary tightening.

Three-month interest rates are currently 5.4%, just above the level of inflation, but 3% above those in the United States, which has a similar inflation level.

Profit Plays to Make Now

Since the Korean stock market currently trades on only 11 times earnings, it appears to represent a truly excellent value, given the country’s favorable growth prospects. Because Korea has few raw materials, it is essentially an anti-commodities play: Its corporate earnings should mostly benefit if commodity and energy prices start to decline.

There are five Korean stocks that have American Depository Receipts (ADRs) fully listed on the New York Stock Exchange and that trade in reasonable volumes. Some of these are more attractive than others-Kookmin Bank, Posco and SK Telecom Co. Ltd. seem the best bargains.

Kookmin Bank (ADR: KB): The largest bank in Korea, Kookmin has been hit by investor disillusionment with the global financial-services sector; indeed, at one point it was down 50% from its 2007 high. It has rallied from its low and currently trades at a Price/Earnings (P/E) ratio of only 7.8 times forecast 2008 earnings.