NEW YORK ( TheStreet) -- As the stability of the U.S. economic recovery continues to remain fragile, investors are turning to international markets to mitigate risk and enhance returns. As for international markets, South Korea is worth a look for good reason.
First, growth in gross domestic product and industrials remains strong and healthy. In the first quarter of 2010, GDP rose by 8.2% when compared to the first quarter of 2009 and recently industrial production rose by nearly 20% from the year before. As for the remainder of the year, this growth is expected to sustain. In fact, the International Monetary Fund recently boosted its growth forecast for 2010 for South Korea to 5.75%, an increase of about 28% from its previous forecasts, buoyed by government led stimulus measures and improving global trade.
A second force adding to South Korea's appeal is its small government. In 2009, public spending accounted for a mere 27% of GDP, the lowest among "rich" economies in the Organization for Economic Cooperation and Development. This trend enables South Korea to keep a tight grip on government debt.
Thirdly, South Korea's close ties with China make its economy attractive. As China's currency increases its flexibility and the yuan's peg to the dollar is eased, South Korean goods become more competitive in the international markets and could bolster demand for exports.
To further add appeal, South Korea's equity markets are valued relatively reasonably, as they are trading at nearly 14.5 times earnings. Lastly, talks about enhanced trade agreements between the U.S. and South Korea could potentially enhance economic activity between the two nations, leaving South Korea the winner.
In a nutshell, South Korea's economy is enjoying sustainable growth, is well-balanced and has positioned itself to be a major economic player. Some ways to play South Korea include:
- iShares MSCI South Korea(EWY), which has 98 different holdings boasting Samsung Electronics as its top holding.
- IQ South Korea Small Cap ETF(SKOR), which focuses on small-cap South Korean companies like Kumho Industrial and Daum Communications .
- PowerShares FTSE RAFI Asia Pacific ex-Jp(PAF), which allocates 33.8% of its assets to South Korea.
Although South Korea remains promising, it is equally important to note its inherent risks and its political differences between North Korea. To help mitigate these risks, the use of an exit strategy which identifies specific price points at which an upward trend could come to an end is of importance. Such a strategy can be found at
Written by Kevin Grewal in Houston.
At the time of publication, Grewal was long EWY.
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