The last time we talked about South Korea was back on November 2 after the Won had strengthened by over 6% the previous month. There's been some big news on the Korean peninsula since then, with North Korean rule having being transferred from the now deceased Kim Jong Il to his son, Kim Jong Un. Kim Jong Il's death was reported on December 17th and the initial reaction in the South Korean equity market to the power vacuum was one of fear and uncertainty. The following day the benchmark South Korean equity index, the Kospi, was the worst performing equity index globally, dropping 3.4%. Here's the bottom ten from December 18th:
The panic was short lived as the index recovered from the initial decline (and then some) over the following 2 days. Here's the line chart of the Kospi starting on the 18th:
For the entire month of December, including that 3 day roller coaster ride, the Kospi finished down 4.7% and was the 11th worst performing benchmark equity index.
As we have discussed with Turkey, South Korea is another country where they have to balance worries about reduced growth with inflation concerns. Some additional color
from Bloomberg:
South Korea’s inflation exceeded the central bank’s target and all forecasts in a Bloomberg News survey, limiting the scope for an interest-rate cut in January even as threats to growth mount.
Consumer prices rose 4.2 percent from a year earlier, matching November’s gain, Statistics Korea said today in a statement. The median estimate of 12 analysts was 4 percent. Prices rose 0.4 percent from the previous month, the biggest gain since August.
Europe’s debt crisis is cutting export demand and North Korea’s leadership handover to Kim Jong Un threatens confidence by adding to the risk of instability on the Korean peninsula. The central bank said yesterday that monetary policy will focus on stable prices and “sound” growth amid “substantial” downside risks for Asia’s fourth-biggest economy.
Going back to 2007, South Korea's stock market has been a strong performer, tracking well ahead of gdp growth:
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