The following is a guest post by forextraders.com.
The South Korean economy has had consistent growth since the 1960’s, making it one of the premier emerging markets in the world. Its success has been in large part due to its focus on manufacturing geared for exports, which have made South Korea the world’s eighth largest exporter of goods ahead of the United Kingdom, Russia and Canada.
[Kevin] The Koreans are also a very hard-working people that place a heavy emphasis on education and production, which helped them rise from a poverty greater than Africa’s to where they are today.
South Korea’s Recent Political History
South Korea’s recent political history begins with the end of the Korean War in 1953. Despite the ceasefire that stopped the hostilities between the North and South, the agreement was never signed by South Korea leaving the two countries technically still at war.
[Kevin] The world was reminded of this recently when artillery shells from the northern dictatorship landed on a small island, killing and wounding people there. The border area is one of the most heavily guarded areas in the world, and in fact is also one of the wildest nature preserves due to the same reason. Military service is compulsory in South Korea as war could always break out again.
In 1961, the military staged a coup d’état led by General Park Chung-hee, who was accused of being a ruthless dictator; however, Park’s rule allowed the South Korean economy to develop significantly until his assassination in 1979.
After the assassination of Park, a political vacuum was left which gave way to yet another coup by General Chun Doo-hwan in 1979 who declared martial law and held South Korea under a tyrannical rule until 1987 when a student was tortured to death.
Demonstrations were held throughout the nation that led to direct elections for a president. Chun’s party, the Democratic Justice Party announced the Declaration on June 29th and the party leader, Roh Tae-woo went on to win the election.
In 1996, South Korea became a member of the Organization for Economic Development or OECD. In 2000, president Kim Dae-Jung held a North-South summit in Pyongyang and later won the Nobel Peace Prize for his efforts to further peace and reconciliation with North Korea.
In November of 2010, tensions between the two Koreas heated up once again, with North Korea attacking Yeonpyeong Island, a three square mile island once claimed by North Korea. The attack claimed one life while 13 others were injured, in addition to setting 60 buildings on fire.
Economic Overview of South Korea
South Korea makes up the world’s 14th largest economy by nominal GDP and 12th by PPP or purchasing power parity. The South Korean economy is a market economy and had one of the fastest growth rates in the world between the 1960s and the 1990s.
South Korea ranks 10th in GDP growth estimates for 2010 with a rate of growth or +6.1% compared to the United States, which ranks 14th with a growth rate of +2.6%. GDP is made up in large part of services, which account for 58%, industry 25% and agriculture, 7%.
Both unemployment and inflation remain considerably low compared to other nations with unemployment at 3.7% and inflation at 2.8%, estimated for 2009. South Korea’s impressive economic attributes include:
- Being China’s third largest trading partner and the U.S.’s eighth.
- Asia’s largest exporter of oil.
- World’s largest shipbuilder.
- World’s 5th largest automobile manufacturer.
- World’s largest electronics manufacturer: Samsung.
- World’s largest LCD, CRT and Plasma screen display maker.
- World’s largest producer of computer memory chips.
South Korea’s Currency
The currency currently used in South Korea is known as the South Korean Won, and its ISO 4217 code is KRW. Each Won is further divided into 100 jeon; however the jeon is no longer used for normal transactions and is used only in foreign exchange. The South Korean Won is considered an exotic currency and its daily transaction volume does not compare with higher volume major currency pairs such as the USD CAD.
[Kevin] I actually find that interesting since the smallest piece of currency I found, 50 won, was worth about half a penny!
Although the Won has existed for thousands of years, the current South Korean currency debuted in 1962 with an original peg to the U.S. Dollar of 125 Won = 1 U.S. Dollar. Subsequent pegs brought the value of the Won to 580 to 1 U.S. Dollar by 1980.
In 1980, efforts were begun to allow the currency to float freely, which was finally achieved in December of 1997 after signing an agreement with the International Monetary Fund.
Currency trading is risky and not suitable for all investors. While there is online fx trading in the South Korean Won, spreads may be wide because of the illiquid nature of the rate and a forex account with additional funding might be required.
This was a guest post by forextraders.com.
[Kevin] True; if you want to try out forex trading, then I recommend putting in only what you can truly afford to lose. As for the Korean Won, the value has dropped a bit since I went to Korea on an exchange trip in 2007.
I find Korea fascinating as their people are extremely hard-working, yet friendly and warm (for the most part). The culture has its good sides and its bad sides; people who work for Samsung only get a few days off in the whole year, including weekends, and they work hard and long. This helps to explain why the Koreans are amongst the world’s heaviest drinkers.
On the other hand, Korea is a very safe society and people are very motivated, respectful and place a high value on education, family, and friendship. They look highly toward Westerners when the Westerners are also respectful, and I personally had a really great time over there. I also formed a friendship for life with one of my roommates who then came to visit us here in North America, where he spent time learning English and learning how to become a chef. While he recently returned back home and put his dreams on hold, perhaps indefinitely, I’m sure that the experience had a great impact on him as well.
Interesting history, especially the events in 1987 that led to the ouster of tyrannical rule. Reminds me of today and the events taking place in the Middle East. I agree with you Kevin to only trade in FX what you can lose. Like so many areas in the financial markets, it looks easier than it is. This comes not so much from experience in the FX market as from observing.
It was a little intimidating seeing about 30 policemen forming a barrier at each entrance to the subway when seeing fireworks in Seoul, or seeing literally hundreds of them lazing around when there were some quiet women protestors protesting against Japan and the “comfort women”, as well as some workers. It was all very subdued compared to what you see on TV and on the news, but these things can always flash out at any time.
I enjoyed the lesson! Didn’t realize S. Korea is the largest Asian exporter of oil! Guess they have too much, and when oil goes up, they do relatively better. Good stuff!
I looked a bit more into it and it seems they are an exporter of upgraded products, not crude itself, but I guess it makes sense given SK’s heavy industrialization!
South Korea does make for a very interesting investment opportunity. Strong growth, and a generally stable government, pending their neighbors to the North don’t do anything to steal headlines.
In a number of respects, South Korea is very much an emerging market, but given its very productive economy, it also shares a lot in common with the average developed world country, too – save for it’s excellent growth rates! I think it makes a great growth investment, but the financial markets are hardly allowing for this growth to trade at a reasonable price. Bummer. 🙁
Kevin, I see a lot of Mises links…sensing that someone might have an Austrian bent, huh? 😉
They have definitely come a long way. Corruption has been a big problem in the past culminating in some disasters such as a mall collapse which killed over 500 people, but forward strides have been made since then. I wouldn’t consider them “emerging” anymore since many areas such as Gangnam in Seoul are much wealthier than many parts in Canada, the US and Europe. In other respects though I agree with you, the government is very young and the society is still coming to grips with the massive change that has taken place over the past few decades.
I am definitely interested in Austrian economics; I didn’t know squat before 2008 but have done a lot of reading since then and I find it illuminating. I am far from considering myself an economic expert on anything but there is something very refreshing in knowing that there’s another viewpoint out there that makes a lot of sense, even though it conflicts with most of what was learned during school and university. It’s healthy to have competition in the space of ideas. 🙂
Thanks for some awesome information on South Korea. Based on your exploration of their economic situation, do you recommend a few ETFs that focus on this country?
I’m not familiar with any SK-specific ETFs but given the economy is dominated by Samsung, Hyundai, LG, etc… you only really need a handful of stocks to hit a large part of their economy. 😉
Thanks for the education on South Korea. Samsung and LG power much of my digital life.
Yep, they are very good at dominating in the hardware space! The IP crown still belongs to the USA, though.
Having lived next to Korea for the past 9 years, I wouldn’t exactly classify it as “emerging.” It is pretty much a developed nation, as JT mentions above.
Aside from that debate, good article with a lot of interesting stats.
I agree! They have grown rapidly; it’s quite something for a country to go from sub-Africa level poverty to wealthy affluence in only a few decades.