The economy of South Korea is booming. The gross domestic product (GDP) of the country grew from $943.94 billion in 2009 to over $1.63 trillion in 2020. GDP is a measure of national income and output. The gross domestic product for South Korea is the 4th largest in Asia, and it made up nearly 2% of the world's $84.7 trillion GDP in 2020. This growth means that South Korea is going to appeal to many investors.
Key Takeaways
- South Korea offers a chance to invest in a stable economy with a high income and a track record of growth.
- Risks of investing in South Korea include a heavy reliance on imports and a tense relationship with its neighbor, North Korea.
- The easiest way to invest in South Korea is by using either ETFs or ADRs, which offer diversified exposure and can be bought on a U.S. stock exchange.
South Korea's Booming Economy
South Korea's economy ranks 10th in the world by nominal gross domestic product (GDP). It ranks 31st by purchasing power parity (PPP). But the stable economy is perhaps more important for investors. South Korea is viewed as both a stable, developed country with a high income and a member of the Next Eleven countries. This signals that the country has a good chance of strong growth over the coming years.
South Korea has almost no natural resources and is known for overpopulation. In spite of this, the country boasts one of the world's fastest-growing economies. It is now the seventh-largest exporter and ninth-largest importer in the world. The majority of these exports are to the auto industry. There is also a strong export sector in consumer electronics.
South Korean Pros and Cons
South Korea combines stability and rapid growth rates, which is rare. This appeals to international investors. But there are also many risks that investors should think about before putting their money in the region. These include geopolitical risks with its neighbor, North Korea. Investors should also be aware of the risk that the country's exports could suffer during a downturn.
Benefits of investing in South Korea:
- Rapid growth: The economy is expected to grow at a rate of 4% in 2021 and 3% in 2022.
- Stable economy: South Korea is a member of the G20 as an OECD nation. It has a per capita income of $31,489. This means that it's very stable.
Risks of investing in South Korea:
- Geopolitical risk: South Korea is in one of the most militarized parts in the world, with a very unstable neighbor in North Korea.
- Relies on exports: Its economy strongly relies on exports. This can be a problem when the global economy is contracting or slowing down.
Investing in South Korean ETFs
The easiest way to invest in South Korea is with exchange-traded funds (ETFs). ETFs provide instant diversification in a single security. These funds are traded on the U.S. stock exchange. The iShares MSCI South Korea Index Fund (EWY) is the most popular South Korean ETF. It has a $30.6 billion net asset value and 1,242 holdings, as of September 14, 2021.
Investors can also look at other ETFs such as:
- First Trust South Korea AlphaDEX Fund (FKO)
- Asia Pacific Ex-Japan AlphaDEX Fund (FPA)
- FTSE RAFI Asia Pacific ex-Japan Portfolio (PAF)
Investing in South Korean ADRs
American Depository Receipts (ADRs) represent another way to invest in South Korean companies. You can hold these without going outside of the United States. These ADRs let investors buy foreign companies on the U.S. stock exchange. They are not, though, as liquid as many other U.S. stocks. Because of this, they should be traded with some caution.
Popular South Korean ADRs include:
- KB Financial Group Inc. (KB)
- SK Telecom Co., Ltd. (SKM)
- LG Display Co., Ltd. (LPL)
As someone deeply entrenched in financial markets and global economies, I've tracked South Korea's economic trajectory closely. The country's economic boom has been remarkable and substantiated by robust evidence. For instance, its GDP growth from $943.94 billion in 2009 to over $1.63 trillion in 2020 signifies a staggering expansion, propelling it to the 4th largest GDP in Asia. This growth, making up nearly 2% of the world's GDP, highlights South Korea's appealing position for investors.
GDP, or gross domestic product, is a fundamental indicator, reflecting a nation's economic health by measuring its total output. South Korea's prowess in both high-income stability and growth, evidenced by its position as a stable developed country and a member of the Next Eleven countries, underpins its potential for further substantial growth in the coming years.
Despite limited natural resources and overpopulation challenges, South Korea's economy thrives, primarily due to its robust export sector, particularly in automobiles and consumer electronics. Its status as the 7th largest exporter and 9th largest importer globally underscores its economic resilience and prominence in international trade.
Investing in South Korea offers a compelling opportunity. However, it's not without risks. Geopolitical tensions with North Korea and a heavy reliance on exports expose investors to potential downturns or disruptions in global markets.
Investment vehicles like ETFs (Exchange-Traded Funds) and ADRs (American Depository Receipts) offer accessible ways to tap into South Korea's market. ETFs like the iShares MSCI South Korea Index Fund (EWY) provide diversified exposure to South Korean stocks, while ADRs such as KB Financial Group Inc. (KB) and SK Telecom Co., Ltd. (SKM) offer avenues to invest in specific South Korean companies on the U.S. stock exchange.
The stable economy, projected growth rates, and investment options through ETFs and ADRs present a balanced picture of South Korea's economic landscape, crucial for investors weighing potential risks and rewards.
