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South Korea is Still a Long-Term Opportunity

“It is time to deal with financial markets with fact-based confidence instead of vague uneasiness”, according to South Korea’s finance minister.

There was nothing vague or indecisive about the governments move last Wednesday to ban short-selling for three months. And that decision came on the heels of the worst decline for the Kospi Index since October 2008.

But even with last week’s volatility, South Korea held its ground. South Korea iShares (EWY) is still a long-term buy, even after shares were battered (to the point of being oversold).

Granted, South Korea’s economic growth in the second quarter was the slowest since 2009, but GDP is projected to expand 4.3% this year. While this is lower than last year’s pace of 6.2%, it’s a respectable rate…especially compared to the U.S. And the country’s jobless rate is steady at 3.3%.

But what if we see another global crisis? South Korea has “enough policy room” to weather whatever may be coming, according to the deputy finance minister… and the country’s fiscal position has improved.

Possibly more telling, though, is that the country has already launched a $2.1 billion plan to digitize all school text books by 2015. And the government plans to raise it reserves of rare earth minerals (used in high tech goods production) to 1,500 metric tons by 2014, compared to an earlier goal of 1,200 tons by 2016.

South Korea is streamlining education, and will make learning materials more readily available to its students. And the country wants more materials to produce exports, and it wants those materials faster.

The bottom line: the market moves last week look to me like a knee-jerk over-reaction. Putting short-term volatility aside, South Korea is still a growth opportunity in the long run.


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