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

  • The deepening rift between President Park Geun-hye and her Saenuri party looks set to impede key economic revitalisation bills, thus constraining real GDP growth. Despite this, the Saenuri party is better placed to win the April 2016 parliamentary election than the disorganised opposition.

  • South Korea's Q215 real GDP grew by 2.2% y-o-y, reflecting the economy's slowest growth rate in nine quarters. We maintain our forecast for 2015 real GDP growth to come in at 2.8% as we expect the domestic economy to pick up slightly over the coming quarters, following two external shocks to the domestic economy. However, external demand is likely to remain weak due to the slowdown in the Chinese economy as well as the weak Japanese yen.

  • South Korea has announced a supplementary budget aimed at mitigating the effects that...

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South Korea Operational Risk Coverage (9)

South Korea Operational Risk

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BMI View: South Korea's advanced and industrialised economy represents an attractive prospect for investment in the Asia region. The country offers few operational risks due to its modern logistics networks, highly skilled labour force and a welcoming policy environment for foreign direct investment (FDI). 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. Nevertheless, South Korea's huge appeal for investors largely outweighs this risk, particularly as the country enjoys a guarantee of security and territorial integrity from the US. Consequently, South Korea scores 70.3...

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South Korea Crime & Security

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BMI View: South Korea offers a safe and secure operating environment for foreign workers and businesses, with a low crime rate and minimal risks from terrorist activity adding to the country's appeal as an investment destination. The constant threat of aggression from North Korea does, however, weigh on South Korea's security profile. 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. Nevertheless, the generally...

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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 67.8 out of 100 in the BMI Trade And Investment ...

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South Korea Industry Coverage (22)

Agribusiness

South Korea Agribusiness

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BMI View: Due to the strong unions behind the industry, the government will need to work closely with private companies to lead the way in enforcing changes in the agriculture sector. The numerous free trade agreements signed in 2015, with the Trans Pacific Partnership being the most significant, signal to us that the agriculture industry is truly going through a much-needed transformation that will lead to increasing competitiveness with global agri-players. Other efforts, such as promoting high-value add food and beverages, also support...

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Autos

South Korea Autos

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South Korea's five main automakers - Hyundai Motor, Kia Motors, GM Korea, Renault Samsung Motors and SsangYong Motor - reported increased in domestic sales by 5.4% to 135,312 units in July, from 128,338 units in the same month of last year, according to data provided by the respective companies. Automobile production, meanwhile, shrank slightly to 404,770 units, down 1.1% from the same month last year as a cut in exports more than offset growth in domestic sales.

Auto sales have been steadily growing over the past year, helped by Bank of Korea's base rate cut in October 2014. Moreover, new models introduced by domestic and foreign carmakers in the past few months such as the new generation Genesis have also stimulated consumer demand. With our Country Risk team...

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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: The South Korean consumer electronics market is forecast to plateau in value terms between 2015-2019, giving it one of the weaker growth outlooks in the Asia Pacific region. Market maturity means South Korea will significantly underperform emerging markets in the region, but will remain lucrative in per capita spending terms. In the short term, high household debt levels will be a constraint on consumer spending, while over the medium term...

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Defence & Security

South Korea Defence & Security

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BMI View: We expect South Korea's defence budget to continue increasing in absolute terms in the next five years. This will be driven by South Korea's need to maintain well-prepared and well-equipped armed forces to deter, or defend from, an attack from North Korea. Moreover, the 2014 Defence White Paper puts significant emphasis on the government's desire to continue expanding the domestic defence market, providing additional support to private companies seeking to participate and increasing exports worldwide. This will contribute to opening up development opportunities for both international and national companies operating in the defence sector.

The conflict that has been characterising South Korea's relationship with North Korea in the past sixty years remains to date the country's main driver for defence spending. Indeed, despite many attempts from...

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Food & Drink

South Korea Food & Drink

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BMI View: Total food consumption in South Korea is expected to increase at a moderate compound annual growth rate of 4.0% over the forecast period between 2014 and 2019. The market is relatively mature, with per capita spending on food items already high, which effectively limits the possibilities for more substantial expansion over the coming years. Nonetheless, growth will be sustained by a relatively stable economic outlook, which will offer opportunities for premiumisation.

Headline Industry Data (local currency)

  • Total food consumption growth year-on-year (y-o-y) in 2015: +2.3%; compound annual growth rate (CAGR) 2014-2019: +3.5%.

  • Per capita food consumption growth (y-o-y) in 2015: +1.9%; CAGR 2014-2019: +3.1...

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Freight Transport

South Korea Freight Transport

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BMI View: We envisage the outperformer in South Korea's freight mix to be road freight in 2015, growing by a healthy 4.00%. This is down on 2014's estimate, however as domestic demand for goods drops this year. We expect to see steady, if uninspiring growth in both the rail and air freight modes in 2015 (2.50% and 1.52% respectively), as moving further into 2015, South Korea will face an increasingly challenging external environment with the falling Japanese yen (relative to the Korean won) leading to increased competition with Japanese producers; Korean and Japanese companies are major rivals in the global export market.

With both the domestic and global outlook remaining weak, we have downgraded our real GDP forecast for 2015 to 3.1% from 3.5% to reflect persistent weaknesses in Korea's main trading partners along with relatively anaemic domestic...

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Information Technology

South Korea Information Technology

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BMI View: We made a minor downgrade to the hardware market growth forecast for 2015 due to a weaker consumption outlook and reports from local retailers of lower than expected sales of desktops and notebooks. This revision aside, we maintain our core view that the South Korean IT market will outperform the majority of developed markets 2015-2019 due to robust growth rates in the software and services segments, particularly in comparison to EU markets mired in economic crisis. The South Korean IT market is forecast ...

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Infrastructure

South Korea Infrastructure

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BMI View: The construction sector is showing some positive signs of recovery with local companies reporting an increase in new orders, but despite this we do not expect a significant improvement in South Korea's construction real growth in 2015. This is primarily due to the country's weak macro fundamentals which have been hit by declining exports together with slowing consumer demand at home, and an outbreak of Middle East Respiratory Syndrome (MERS). On the other hand, upside could come from the energy and transport subsectors with the expansion of the Incheon International Airport and new nuclear fleet.

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

  • As expected, South Korea's...

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Insurance

South Korea Insurance

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BMI View: We have a favourable outlook for South Korea's life and non-life insurance segments over the next five years. As both segments are considerably concentrated due to the domination of offshoots of the chaebol corporate groups, they are characterised by disciplined underwriting and absence of brutal price competition, which will continue to enable steady growth in the foreseeable future. We identify future investment opportunities in health insurance in particular, as a result of demographic changes and rising private health expenditures.

South Korea's life insurance comprises the larger segment of the country's overall insurance sector, accounting for nearly 59% of total premiums written in 2015. Non-life insurance, however, will grow at a considerably higher rate over the next five years, which...

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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 largest...

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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 Indonesia's export ban on unprocessed ores will help support bauxite prices.

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...

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Oil & Gas

South Korea Oil & Gas

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BMI View: The lower oil price environment will help to boost refining margins and reduce South Korea's import bill. Weaker Chinese demand and rising competition in the refined fuels export market will require Korean refiners to invest in producing higher-grade fuels, as well as petrochemical products. While South Korea will remain a large net importer of LNG, slower economic growth and greater integration of cleaner energy sources will dilute gas' share in the country's total energy mix in the coming years.

Headline Forecasts (South Korea 2013-2019)
2013e 2014e ...

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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: Despite having an ageing population with a high burden of non-communicable diseases, market potential in South Korea will continue to be limited by the government's cost containment policies. We highlight that companies will continue to invest in innovative products or expand overseas in order to maintain their revenues.

The South Korean government will continue to enforce price pressures on pharmaceuticals as a means to contain the escalating healthcare costs brought on by the country's ageing population. This is particularly as other avenues - including shifting the healthcare cost burden onto consumers - will remain more subdued as private expenditure already accounts for a large portion of total healthcare spending. Moreover, South Korea has developed multiple price control mechanisms that it can...

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Power

South Korea Power

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BMI View: The outlook for South Korea's renewables industry remains muted, despite the recent announcement of the government's clean energy investment plan. The country's challenging regulatory environment for renewables and the availability of cheaper sources of power, notably nuclear and coal, will undermine investment into the sector.

We forecast overall power generation to grow at an average of 3.8% a year between 2015 and 2024, reaching 791.3 terawatt hours (TWh) by the end of the period. While coal- and gas-fired generation will continue to play a vital role, we expect nuclear generation to have the fastest growth rates. That said, we believe high growth rates will feature more greatly in the second half of our 10-year forecast period, given the current high level of public distrust of nuclear power.

The South Korean market for liquefied...

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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 Group...

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Renewables

South Korea Renewables

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BMI View: We have revised our 2014 power generation forecasts this quarter. Our growth forecast for non-hydropower renewable energy in South Korea in 2015 is 20% year-on-year thanks to the Korean Government's decision in April to invest USD1.7bn in renewables in 2015. Growth will be driven primarily by wind and biomass, and solar to a lesser extent. Despite this investment injection, our outlook for South Korea's renewables industry remains fairly muted, as the challenging regulatory environment and the availability of cheaper sources of power undermine investment into the sector. Coal is set to remain a key component of the power mix over the next decade, due to the low cost of coal-fired power generation - we forecast coal's share in the power mix to increase to 50% by 2024. As such...

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Shipping

South Korea Shipping

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BMI View: Our forecasts for the two main ports in South Korea remain unchanged for 2015 and continue to echo the concerns surrounding the slowing of Chinese growth, as well as slackening demand among other key export partners of late. The outperformer in tonnage terms is set to be the port of Busan (4.5%), while box throughput will be highest at the port of Incheon (10.0%).

South Korea's Q215 real GDP grew by 2.2% y-o-y, reflecting the economy's slowest growth rate in nine quarters. We maintain our forecast for 2015 real GDP growth to come in at 2.8% as we expect the domestic economy to pick up slightly over the coming quarters, following two external shocks to the domestic economy. However, as stated, external demand is likely to remain weak due to the slowdown in the Chinese economy, as well as the weak Japanese yen.

...

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Telecommunications

South Korea Telecommunications

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BMI View: New initiatives for MVNO's could add some growth and increase competition, although the mobile growth is expected to slow over the forecast period. 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. Additionally, a spectrum auction in H215 could pave way for 5G technology. 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. The mobile market has continued to expand, even with penetration...

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Tourism

South Korea Tourism

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BMI View: We expect the outbreak of MERS to weigh on the South Korean tourism sector over 2015, however this damage to revenue growth will be short lived in our view, as the disease outbreak is waning, and we expect arrivals to resume their former trajectory towards the end of the quarter. Over the medium term through to 2019, therefore, we expect the tourism sector to see a strong expansion, boosted by the country's hosting of the Winter Olympics in 2018.

We believe that the expansion at Incheon International Airport (ICN) highlights the growing demand for air travel to South Korea, predominantly from other countries within the region. The rapid pace of economic development throughout the region has significantly increased the purchasing power among the Asia consumer class, boosting the demand for air travel (leisure and business) in the...

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