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Tickers in this Article: EWY, SHG, KB, PKX
What do you say about a country with an estimated growth in GDP of 4.4% in 2007, a stock index with a year-to-date return over 20% and moderate inflation? I know I would say it cannot be the United States, and that I want to know more!

South Korea
The country responsible for these statistics is South Korea. Recently the country's stock index, KOSPI, hit a new all-time high fueled by a strong export business. Because the country is the largest trading partner and exporter to China it has been riding the wave of China's growth. South Korea is no slouch on its own, and is the 12th largest economy in the world based on GDP numbers.

In 2006, South Korea's GDP grew by 5.1% and the IMF growth estimate for 2007 and 2008 is 4.4% for each year. The government reported growth of 0.9% in the first quarter of 2007, close to the pace needed for the IMF estimate. If the region continues to expand, it should only solidify South Korea's presence as a world player.

Investors can look at just the country as an investment opportunity on the entire Asian region. With China to the west and Japan to the east, Korea is surrounded by the two largest economies in the region, and South Korea's comes in at No.3.

Unruly Upstairs Neighbor
South Korea's neighbor to the north is the main concern of most investors. The communist country of North Korea and its nuclear aspirations are a reason to second-guess an investment in the country. Even though it is a concern, North Korea is more of a threat to itself than anyone else. Nobody in the region or the United States wants to see North Korea get its hands on long-range nuclear weapons.

Possibly due to the risk of North Korea, the KOSPI is trading at a discount to the United States even with the rally over the last few years. If North Korea does decided to stop its nuclear-weapon plans it will be a huge boost to South Korea.

Korean ETF
The easiest way for U.S. investors to gain access to the South Korean stock market is through the iShares MSCI South Korea Index Fund (NYSE: EWY). In 2006, the exchange-traded fund (ETF) put together its worst one-year performance since 2002 and still gained over 5%. In the first five and a half months of 2007, the ETF is up 25% and extended its gain from the low in 2001 to over 435%!

The ETF charges a reasonable 0.7% expense ratio and averages over 1 million shares traded per day.

The top-five holdings of EWY make up 37% of the allocation with the No.1 holding, Samsung, accounting for 15%. Samsung is the largest company in South Korea and considered a global conglomerate. The next two holdings are traded in the United States as ADRs, POSCO (NYSE: PKX) and Kookmin Bank (NYSE: KB).

Taking Stock in South Korea
PKX is the third-largest steel maker in the world and has a great advantage over the competition because of its location. Its proximity to China it allows for a lower transportation cost than those companies not located in the region. In April the company reported a 11% increase in net income, good growth for a steel company.


KB is the No.3 holding in EWY, but I prefer the No.5 holding - Shinhan Financial Group (NYSE: SHG). The company is one of the largest financial institutions in the country with approximately 1,350 locations. By offering retail, corporate and international banking services the bank is able to meet the needs of nearly citizen in the country. The stock recently broke out to a new all-time high, signaling a new buying opportunity.

Seoul Patrol
If you are willing to trade the risk of neighboring North Korea for solid growth in the future, then it is time to consider South Korea as an investment option. Of course, investing in one of the country's individual stocks traded here in the United States will offer more reward, but, at the same time, risk increases. The best one-stop play is to consider EWY or one of the other South Korean ETFs available for investors. Either way, remember to buy on a pullback and do not chase any highs.

For further reading on global investments, see Investing Beyond Your Borders.

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