Korea: Buy - SAMPLE REPORT
Summary
The Economic Clock™ for Korea continues suggesting good market prospects ahead, and there are plenty of sectors still worth considering.
The Economic Time™
Monetary Economy:
Inflation has been decelerating since its peak in August 2004. By this March, that rate had more than halved. Food inflation has kept falling since August 2004, while non-food inflation has been accelerating mildly since last August. Because of slow inflation, the Bank of Korea has allowed the monetary aggregates to keep expanding. Growth in reserve money stopped contracting last September. This March, it rose by 7%. Growth in M1 peaked last July and is decelerating sharply, while M2 and M3 are accelerating. Lending has been accelerating sharply on account of more loans for equipment: this is good news in that it indicates that Korean companies are re-tooling. Interest rates bottomed In November 2004 and have been rising, particularly at the long end of the curve. Thus, the yield curve is steepening, which bodes well for growth. On a three month monetary policy view, we expect the Bank of Korea to maintain its easy monetary policy: inflationary pressures remain low because of low domestic price pressures, strong productivity, and because the stronger won keeps imported inflation at bay.
Real Economy:
Because growth continues looking better, the policy mix is neutral. While the Bank of Korea is maintaining is easy monetary policy, fiscal policy is contracting: capital expenditure is contracting twice as fast as current expenditure is. GDP keeps rising especially as regards consumption: this indicates robust consumer confidence. That is reflected in stronger retail sales. Capital formation keeps decelerating, but as indicated above, stronger lending to this sector suggests plenty of growth ahead. Exports remain lively, rising at 10% per annum. Industrial production has been rebounding strongly since February, 2005. On a three-month macro profits view, we remain optimists: stronger domestic demand and solid exports are reflected in a steeper yield curve. Besides, productivity must be rising, as manufacturing output is rising 20x faster than employment is. Unit labour costs probably are falling in that wage growth has been decelerating since February 2005.
Sectors
Strong Buy Sectors
Buy Sectors
- Telecoms
- Technology
- Machinery & Equipment
- Iron & Steel
- Insurance
- Banking
Strong Sell Sectors
- Textiles, Clothing & Footwear
- Machinery & Equipment
- Construction Materials
Sell Sectors
- Warehouse & Silo
- Transportation Equipment
- Transportation & Logistics
- Foods & Beverages
- Finance & Securities
- Chemicals
