South Korea is the fourth largest economy in Asia, attracting a number of our clients. South Korea is home to many world-class companies employing cutting-edge technology in the production of everything from mobile phones to ships, which are exported globally. Open trade policies gives the country access to international markets, which has been further advanced by the many free trade agreements the Korean government has signed.

We keep our clients informed of the latest market moves and political developments in South Korea as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 21 of the country’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you ahead of the curve in South Korea, so business is made easy.

Country Risk

South Korea Country Risk

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Core Views

  • While we remain relatively constructive on South Korea's economic growth in 2014, as we expect real GDP growth to accelerate to 3.0% from 2.8% in 2013, our forecasts are fairly below consensus. We highlight growing risks from Corporate Korea as an increasing number of chaebols, particularly within the construction sector, are succumbing to the prolonged slump in the domestic real estate sector. Additionally, a slowdown in China's economy, and the ensuing drag on the Korean economy, is very much on the cards

  • While the prescribed targets laid out in South Korea president Park Geun-hye's economic reform plan may appear overly ambitious, the proposed drive towards deregulation and support of the services sector, if realised, will provide the Korean economy with new pillars of economic growth and set the country on a more sustainable path of economic expansion. Also,...

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South Korea Operational Risk Coverage (9)

South Korea Operational Risk

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BMI View: South Korea is an attractive investment destination with relatively low operational risks due to its modern logistics networks, highly skilled labour force, and the government's foreign investment friendly policies. However, security risks stemming from the potential escalation of the ongoing conflict with North Korea will remain a threat for firms operating in the country.

While South Korea has low levels of crime, the potential for an armed conflict with North Korea is the largest operational risk for companies in the country. South Korea has come into armed confrontation with North Korea in the disputed West region in 1999, 2002, 2009, and 2010. Although none of the attacks had a significant impact on the private sector, a large-scale attack by North Korea, given the unpredictable nature of its regime, cannot be ruled out. Another...

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South Korea Crime & Security

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BMI View: South Korea offers a generally safe and secure operating environment for foreign workers and businesses, with a low crime rate and minimal risks from terrorist activity. This makes it one of the safest locations for expatriates in the world. However, the country faces a perpetual risk of interstate conflict with its northern neighbour, with long periods of heightened tensions being the norm, punctuated by occasional armed confrontations. Although there has been no full-scale military conflict with North Korea for several decades, the risk of miscalculation, misunderstanding or belligerent actions leading to war remains high. In addition, cyber attacks, often launched by North Korea, are becoming a key risk to business activity, particularly due to South Korea's reliance on the internet. South Korea's overall score in...

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South Korea Labour Market

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BMI View: South Korea's labour market is reasonably well suited to attract foreign businesses. It boasts a high level of education and employable skills amid reasonably high unemployment. This means there is a large number of educated, skilled labourers seeking work, representing significant opportunity for employers. However, the major risks involve a shrinking labour force - the result of an aging population - and the limitations and pressure placed on South Koreans by the rigid education system. Overall, South Korea receives a Labour Market Risk score of 67.6, placing it sixth out of 30 states in the Asia region.

The education system in South Korea is regionally and globally excellent. South Korea boasts one of the most intensive education-orientated cultures in the world, with academic success and scholastic achievement considered one of the...

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South Korea Logistics

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BMI View: South Korea has a very developed logistics network, with a high-quality and diverse transport network providing good access to international supply chains. Businesses will further benefit from the minimal trade procedures and low trade costs. That said, while utilities costs remain low for now, over the long term we expect South Korea's overdependence on raw material imports to drive up costs if it fails to diversify its energy supply.

South Korea's transport network provides extensive transportation links across the country for both cargo and passengers. Road is the predominant form of freight transport, and extensive and high-quality roads traverse the country. The country's high-quality rail infrastructure, with bullet-style trains such as the Korea Train eXpress (KTX) reaching up to 350km/h, facilitates quick and efficient transport across the island,...

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South Korea Trade & Investment

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BMI View: Trade and investment risks are low in South Korea owing to the country's open economy, relatively low fiscal and trade barriers and minimal red tape plaguing its bureaucracy, as well as the effective enforcement of the rule of law. As a result, despite a dip during the global financial crisis, foreign investment inflows are recovering, a trend we expect to continue in the foreseeable future. That said, risks remain for foreign investors, notably a number of burdensome taxes and the weak enforcement of physical property rights. For these reasons, the country receives an overall score of 67.1 out of 100 for Trade And Investment Risk, putting it in...

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South Korea Industry Coverage (21)

Agribusiness

South Korea Agribusiness

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BMI View: We believe that any significant changes in the Korean agricultural industry will be mostly public sector-led due to the strong unions behind the industry. Given the widespread changes which the government has been pursuing, we are optimistic about the long-term prospects of South Korea's agricultural sector. Our view is based on the decision to gradually remove barriers to trade such as the KORUS FTA and the recently-inked FTA with China and move up the value chain especially to support its growing food exporting industry. Indeed, we believe that the growing demand for exports from Korea should boost domestic agricultural production. Government-led efforts such as the expansion of education and financial support for...

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Autos

South Korea Autos

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Sales

According to the Korea Automobile Manufacturers Association, domestic auto sales declined 0.2% year-on-year (y-o-y) in October 2014 to 122,247 units. This brought sales for the first 10 months of 2014 to 1,181,225 units, an increase of 2.9% y-o-y and in line with our full-year growth forecast of 3.2%. In 2015, we forecast sales to grow 2.7% as steady growth in private consumption bolsters demand for consumer durables.  

Strikes Fuel Long-Term Production Woes

On the production side, plant workers at Hyundai and Kia held their first strike of 2014 in August, demanding higher wages and improvements in working conditions. Similar strikes in previous years resulted in output declines of 16.1% y-o-y and 25.9% y-o-y in 2012 and 2013 respectively, during the months of August and September ( see 'New Labour Dispute Adds To Hyundai'...

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Commercial Banking

South Korea Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

South Korea Consumer Electronics

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BMI View: We expect the South Korean consumer electronics market will continue to grow over the medium term, but growth will be slow due to market maturity and significantly underperform emerging markets in the region. In the short term, high household debt levels will be a constraint on consumer spending and over the medium term high penetration rates in almost all device categories means there will be no surge in demand as first-time buyers enter the market....

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Defence & Security

South Korea Defence & Security

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BMI View:   South Korea's defence and security outlook is dominated by the unpredictable and tense relationship with Pyongyang. Uncertainty drives defence spending increases and technological development, with missile-defence and jet fighters the pre-eminent concerns for Seoul at present. Domestic defence companies have generally stagnated in 2013 and 2014, with a handful of key civilian orders providing a much-needed boon to their finances. Longer-term, we see emerging markets in the Middle East and Sub-Saharan Africa as key areas for South Korean defence export growth.

A significant portion of defence expenditure funds are expected to be used to upgrade South Korea's missile defence system. The Korea Air Missiles Defence system (KAMD), or so called 'kill chain project' will see Seoul move from its German-made PAC-2 missile system to the PAC-3 system produced by American contractor...

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Food & Drink

South Korea Food & Drink

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BMI View: Total food and drinks consumption in South Korea is expected to increase moderately over the forecast period between 2013 and 2018. The market is relatively mature with per capita spending on food and drinks items already high, which effectively limits the possibilities for more substantial expansion over the coming years. Nonetheless, food consumption growth will be sustained by a stable economic outlook and gradually strengthening consumer spending power, which will offer opportunities for premiumisation.

Headline Industry Data (local currency)

  • Total food consumption growth year-on-year (y-o-y) in 2014: +2.8%; compound annual growth rate (CAGR) 2013-2018: +4.7%.

  • Per capita...

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Freight Transport

South Korea Freight Transport

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Global economic headwinds that continue to circle are set to weigh on export growth and, therefore, adversely affect South Korea's freight industry over the short term. The South Korean freight modes are set to register steady if uninspiring growth in 2015 as a result.

Meanwhile, we believe the larger budget will result in fiscal strain in the short term as the government has projected revenues of 3.6% growth year-on-year (y-o-y) to grow at a slower rate than expenditure increases of 5.7% y-o-y. While we expect the Korean economy to grow at a slightly faster rate next year, our forecast of 3.6% real GDP growth remains below consensus of 3.8% growth.

The South Korean road freight sector is once more set to be the outperformer in terms of mode in y-o-y growth at 4.00% in 2015. Rail and air freight will see slightly lower gains this year (3.15% and 2.26% respectively), while the port of Busan will outperform domestic peer...

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Information Technology

South Korea Information Technology

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BMI View: We downgraded our outlook for IT spending growth in South Korea in the Q1 2015 update to reflect a weakening of the economic outlook, but we still expect it to outperform the majority of developed markets 2015-2018with robust growth rates, particularly in comparison to EU markets. The South Korean IT market is forecast to grow at a CAGR of 5.5% 2015-2018 to reach a value of KRW34trn in 2018. One...

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Infrastructure

South Korea Infrastructure

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BMI View: We see no reason to deviate from our expectations of a continuing slowdown in South Korea's construction sector. This is primarily because of our downbeat outlook towards all of the country's construction sector drivers - namely, weak macro fundamentals for residential buildings, a poor export outlook for non-residential buildings and declining government spending on infrastructure.

Some notable factors that affected infrastructure development in recent quarters were:

  • The slowdown in South Korea's construction industry that we have been calling for appears to be under way. According to latest data from the Bank of Korea (BoK), the South Korean construction industry expanded a seasonally-adjusted 2.4% year-on-year (y-o-y) in Q114, slowing from 3.9% in Q413. Overall building...

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Insurance

South Korea Insurance

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BMI View:  In line with various recent and anticipated developments within South Korea's insurance industry, we foresee both life and non-life insurance segments to achieve steady growth rates through the 2015-2018 forecast period. The growth in life premiums written will for a large part be driven forward by an increase in private healthcare expenditures resulting from the ageing population and an increase in chronic diseases. The expected rise of the non-life segment, which is set to overtake the life segment in market share in the near future, is underpinned by rapidly growing healthcare insurance premiums, paired with the growing motor vehicle sub-segment due to governmental stimulations. Major players in the insurance industry have considerable pricing power, and they have altered their distribution strategies and product portfolios to enhance profitability. Overall, South Korea's insurance...

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Medical Devices

South Korea Medical Devices

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BMI Industry View: The South Korean medical device market continues to see sluggish growth. Nevertheless, market fundamentals remain strong with a rapidly ageing population and increasing demand for sophisticated medical technology. Medical device imports are likely to come under increasing pressure from locally produced products in certain sectors. Although the domestic manufacturing industry remains fragmented, the number of producers has more than doubled in recent years and domestic output is expected to see steady growth as South Korea seeks to further reduce its reliance on imported products, whilst boosting its share of the global medical device market.

...

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Metals

South Korea Metals

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BMI View:  South Korean metals consumption growth is set to moderate in 2015, as the country's exports of manufactured goods are hit by a global economic slowdown and an expected contraction in Europe. South Korea is a major producer of steel and slab zinc, but domestic mining output of ferrous and nonferrous metals is small and reliant on imports for the raw materials required by the metals industry. Domestically produced metals and metal products are fundamental to the country's industrial base, as well as trade.

South Korea has very small reserves of copper and the production level of both mined and refined copper is insufficient to meet domestic demand. The country has to rely on imports to supplement domestic production, and is the world's sixth...

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Mining

South Korea Mining

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BMI View: The cooling of the Chinese economy will remove the shine off mining investment in South East Asia. Frontier regions will be the first places where miners pull back their investment as brownfield projects take precedence. Nonetheless, it is certainly not all gloomy in the mining sector. Resilient demand from the power sector will continue to support growth in coal production, while the positive development of the nuclear sector in South Korea fuels uranium mining production.

Despite the rich deposits of untapped minerals on offer, we believe South East Asia's mining sector will struggle to uncover its potential over the coming years. The cooling of Chinese economic growth will remove a crucial pillar of support for mineral prices, particularly industrial metals such as iron ore and copper. For instance, we...

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Oil & Gas

South Korea Oil & Gas

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South Korea's industrialised economy combined with the country's lack of significant oil and natural gas reserves will keep Seoul a large importer of crude oil and natural gas. Poor crude oil refining margins and high oil prices may turn the country's large petrochemical sector towards gas, which would support the growing importance of gas over oil in the economy. Major changes in the regional Asian gas trade and LNG will also affect Seoul's decision-making on this issue. Russia's prospects of penetrating to the East, as well Iran's opening up to other Asian markets, while Qatari LNG continues its enhances in quality and availability will greatly assist South Korea's future energy needs.

Headline Forecasts (South Korea...

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Petrochemicals

South Korea Petrochemicals

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South Korea's drive to expand paraxylene (PX) will tap into China's massive deficit in the polyethylene terephthalate (PET) chain. But BMI's latest South Korea Petrochemicals Report warns that as Chinese economic growth cools and its capacities develop, export-led growth will have to diversify.

Xylenes capacities surged to 10.5mn tpa in 2014, compared to 6mn tpa in 2010. PX demand has been strong in recent years, in tandem with new purified terephthalic acid (PTA) plant startups in China. However, demand is not likely to increase further, as no PTA plant startups are planned in 2015.

The industry is focusing on adding value to the chemicals chain and serving domestic electronics and automotive industries with an emphasis on quality and specialisation. South Korea's demand for naphtha, which is used as the country's sole petrochemical feedstock, is accelerating with the development of naphtha-...

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Pharmaceuticals & Healthcare

South Korea Pharmaceuticals & Healthcare

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BMI View: Internationalisation will become a critical element in the business strategies of South Korean drugmakers due to pricing controls in the domestic market and the strong commercial opportunities in developing economies. We highlight the importance of emerging markets in South Korea's expansion strategy as the strong role of generic medicines in these countries play to the strengths of many Korean drug portfolios, while the more lenient regulatory environment allows for the rapid commercialisation of products.

Headline Expenditure Projections

  • Pharmaceuticals: KRW16,590bn (USD15.8bn) in 2014 to KRW17,097.2bn (USD16.3bn) in 2015; +3.1% in local currency terms and +3.3% in US dollar terms.

  • Healthcare: KRW107,881bn (USD102.5bn) in 2014 to KRW114,600bn...

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Power

South Korea Power

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BMI View: While our medium-term outlook for South Korea's electricity sector remains positive, with fundamental factors such as stable economic, positive demographic growth and supportive public policy all providing power companies with opportunities, we note the growing conflict concerns about pollution and safety will weigh on profitability. However, in the short-term we believe the imperative to minimise electricity shortfalls will prevail, which should therefore see the government take a more positive stance to encourage the expansion of generation capacity.

We forecast overall power generation in South Korea to grow at an average of 4.2% per annum between 2014 and 2023, reaching 788.1 terawatt hours...

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Real Estate

South Korea Real Estate

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BMI View: South Korea possesses a well developed commercial real estate sector that is supported by a robust financial sector as well as an increasingly affluent population. The country's economy, however, has experienced a sluggish recovery and this is temporarily holding back the overall potential of the sector. While we do not expect to see any real changes to rental rates across all the office, retail and industrial sectors during 2015 and 2016, the South Korean commercial real estate sector does have considerable potential in the long term.

Seoul's reputation as a regional financial hub is helping ensure strong demand for office space. Existing companies are generating much of the new demand through their expansion plans. The recent sale of the Korea Electric Power Corporation's (KEPCO) Gangnam headquarters to Hyundai...

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Renewables

South Korea Renewables

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BMI View : Our outlook for the South Korean renewable energy sector remains unchanged this quarter, but several recent developments in the regulatory environment pose significant risks to our long-term forecasts.

We are maintaining our 2014 growth forecast for non-hydropower renewable energy in South Korea this quarter as our assumptions for the sector remain relevant. Growth in 2014 will primarily be driven by wind and biomass energy, and solar energy to a lesser extent. We have maintained our long-term forecasts for renewable energy in South Korea this quarter and forecast non-hydropower generation to grow an average of 13.4% per annum between 2014 and 2023.

Key Trends And Developments

  • South Korea replaced its feed-in tariff system with a renewable portfolio standard (RPS) which will...

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Shipping

South Korea Shipping

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Exports are forecast to grow by just over 6% in 2015, down on the double-digit growth of 2014 (10.48%) which, nonetheless, should prove a boost to the country's shipping industry. In 2015, we expect to see a broadly similar situation as 12 months previous, with the Port of Busan once more leading the way in terms of year-on-year (y-o-y) tonnage throughput growth, while the Port of Incheon will lead in box terms.

In our view, the signing of the Korea-China free trade agreement (FTA) between the two close trade partners will benefit both parties, with the bigger portion of the economic benefits accruing to South Korea. According to South Korean government estimates, the implementation of the Korea-China FTA is expected to help boost annual trade volume between the two countries from USD229bn in 2013 to USD300bn in 2015. The agreement between Asia's fourth largest and largest economy is further expected to increase bilateral ties and further the...

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Telecommunications

South Korea Telecommunications

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BMI View: Although the regulator has objected to handset subsidies, and fined operators for offering them, the access to new handsets has been driving the fast upgrade from 3G services to 4G. South Korea is one of Asia's outperformers, with consumers happy to spend on mobile services and often keen to upgrade to the latest services. This is also reflected in the wireline market where high-speed broadband continues to show good growth.

Key Data

  • The migration from 3G to 4G continues to grow apace. 4G users increased at a robust 34.9% y-o-y to 34.64mn as of Q314.

  • The mobile market has continued to expand, even with penetration at 114% in 2014.

  • The fixed-line market is still expanding, mostly due to the growth of VoIP, but...

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