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The South Korean economy is a paradox. Samsung already has already has 29 plants and 50,000 workers in China.

Since China is already starting to manufacture stuff like machine tools that the South Koreans were busily exporting in 2003 and 2004, South Korean planners believe it must quickly transform itself into a finance, communications and transportation hub ' akin to the role of Singapore or Switzerland. Together with the likely re-emergence of the North Korean problem, this may very well undermine investor confidence.

Bottom line: buy Samsung based on valuation and top notch global reach and R&D but expect tougher going for the South Korean economy as China turns from robust export market to direct competitor.

or more information go to http://www.chartwellasia.com or call 877-221-1496

Samsung dominates life in its home country like no other fellow student in the world. But the slogan "what is good for Samsung is good for South Korea" is open for debate.

The South Korean economy is a paradox. It has become of the third largest economy in Asia adapted to Japan and China. Its 48 million citizens have in one generation enjoyed a sizable jump in their standard of living and no country has benefited more than South Korea from the rise of bubble which has take rise a vital export market. Its sovereign credit rating was recently upgraded due to reduced tensions with North Korea and it enjoys foreign exchange reserves of over $200 billion. The Korean people should be full of satisfaction for a job well done but instead are rather a discontented lot.

Its per capita income is in regard to one third that of the OECD average. Economic growth is expected in the 3-4% range closer to a mature economy than an Asian tiger. Unemployment is personable an issue and a stronger currency and relatively high wage levels are crimping exports which estimation for 40% of its economy. Exports are up only 7% this year after all a 31% jump last year. thereon a credit card binge, unexceptional net consumer accounts receivable is equal to 100% of disposable income and the bank of Korea recently bloated up its standard rate for the first time in three years.

What is going on here? Somewhat surprisingly, South Korea is experiencing many of the same outsourcing issues that Americans complain about. It was the largest investor in tiling last year with over $6 in fixed investments. Its largest steel maker POSCO attested its intention to invest $12 a zillion in a steel plant in India where it once runs 24 steel companies. Hyundai manufactures 600,000 autos in enamel and its collaborate Kia makes 150,000 more.

Meanwhile Samsung Electronics has take birth Asia’s largest technology trust by market cap (larger than Sony), and its largest maker of memory landing signalman and flat panel screens and mobile phones. Samsung enjoys a credit rating higher than South Korea’s sovereign rating. With 62 affiliates, the Samsung group dominates life in Korea like no other conglomerate corporation in history. It represents 15% of the nation’s total economic activity, 25% of the resources of the KOSPI stock market and the taxes it pays represent scarcely 10% of total government income!

Samsung, up 25% so far this year, is still magnetic at hereabout 11 times consensus 2006 earnings estimates and its operating profit was up 29% in the third quarter. Despite third quarter net income declining 30%, a strong fourth quarter is expected. There is a shortage of LCD television panels and its flash memory chip global market share exceeds 60%. As prices have come down flash chip sales have gone up 40%.

But the companion is not a terrific play on the South Korean economy. Rather it is a global play on its three key markets and the expected payoff from its extraordinary agency to R&D. The South Koreans are discontented since the five largest companies are growing outside the country more than in it and at a stage of development where it should be more competitive manufacturing onshore. The flummox is the low cost manufacturing platform with huge economies of scale just next door – the issue is China. Samsung before has as yet has 29 plants and 50,000 workers in China.

Since crock is or ever starting to manufacture stuff like machine tools that the South Koreans were busily exporting in 2003 and 2004, South Korean planners put faith in it must quickly transform itself into a finance, publishing and transportation hub – akin to the role of Singapore or Switzerland. The question then becomes do they have the right companies, the right skills and what is its competitive advantage?

Together, Samsung, POSCO, KEPCO (Korea Electric Power) and SK Telecom narration for much 50% of South Korean stock market’s market capitalization. To use a chess analogy, the South Korean starting five are strong but its legislature is a bit thin and its team has lost the home court advantage. The problem is not Samsung but rather that they need regarding ten more Samsungs.

The top four companies also make up 40% of the South Korea iShare (EWY) ETF which is up 29% so far this year. Samsung friendless proceeding for 23% of this ETF and sale the iShare gives you more exposure to the top ten South Korean companies. I am trimming our position in the South Korea iShare to take some profits off the table and with the expectation that the stronger won and higher interest rates will lead to a slowdown in exports. Together with the likely re-emergence of the North Korean problem, this may very well undermine investor confidence.

Bottom line: buy Samsung based on valuation and top notch global reach and R&D but expect tougher going for the South Korean economy as crock turns from robust export market to direct competitor.

or more information go to http://www.chartwellasia.com or call 877-221-1496

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