With many analysts predicting slow and anemic growth for the U.S. economy over the next few months, many investors have once again turned their attentions overseas in search of opportunities. The iShares MSCI Emerging Markets Index (NYSE:EEM) has once again become a popular investment vehicle, regaining much of its first-half losses. However, there are few vocal analysts that have recently questioned the Chinese economic machine and there are still risks involved in emerging markets investing. Nonetheless, investors still need a healthy dose of international investments in their portfolios and one nation is straddling the gap between emerging and developed markets.

IN PICTURES: Learn To Invest In 10 Steps

An Asian Tiger
South Korea offers the best of both emerging and developed world markets. The high-tech exporting economy has thrived in the global credit crisis. In the first quarter of 2010, GDP increased by nearly 8.2% versus the first quarter of 2009. Industrial production is up 20% from the year prior. This increase in global trade and exports has given the International Monetary Fund (IMF) reason to boost its GDP forecast for South Korea for full-year 2010 to 5.75%. This is an increase of about 28% from the IMF's previous forecasts. Switching gears from a pure manufacturing economy to one based on high-technology innovation, South Korea has managed to stay competitive on a global landscape. This competitiveness has not been lost on analysts. Index provider MSCI (Nasdaq:MSCI) recently stated "South Korea continues to meet most developed markets criteria ... This year the country narrowly missed getting its upgrade from emerging market status to developed status."

Long term, the nation offers continued growth prospects. Korean companies have been making inroads into other emerging markets such as India. South Korea is also a beneficiary of China's recent policy to float its currency. As the Yuan's dollar peg is slowly removed, high-tech South Korean freight becomes more cost competitive in the international marketplace. This will strengthen demand for its exports. Recent trade talks with the United States will also benefit the nation's exports.

Finally, South Korea's national balance sheet is strong. Government spending in the nation only accounts for about 25% of GDP. This compares with 115% in Greece and 192% in Japan. This is the lowest percentage of OCED member nations. South Korea also enjoys a budget surplus.

South Korea in a Portfolio
Now might be the time to add South Korean equities to a long-term portfolio. Stocks from the nation trade at a dirt cheap price to earnings ratio of around 10. South Korea's ties to the United States make it relatively easy to add its stocks to portfolio. For those investors who want a broad emerging market approach for addition of the nation, the First Trust BICK Index (Nasdaq:BICK) replaces Russia with Korea in the popular BRIC theme. For a strictly pure play on South Korea, the iShares MSCI South Korea Index (NYSE:EWY) follows 102 different stocks on the Kospi Market. The fund charges 0.65% in expenses and has averaged a 9% annual return since inception in 2000.

For investors wanting to take full advantage of the future growth prospects of South Korea, the IQ South Korea Small Cap ETF (Nasdaq:SKOR) tracks a basket of 99 of the nation's fastest growing small caps. (Learn more about small caps, read Small Caps Boast Big Advantages.)

There are several Korean ADRs that trade on the big boards for investors to choose from. Korea's adoption of smart phones and broadband infrastructure has helped leading telecommunications provider SK Telecom (NYSE:SKM) find outsized profits in recent quarters. The worldwide growth of energy efficient LCD and LED television and monitor panels means long-term growth for panel maker LG Display (NYSE:LPL). Finally, the emerging market infrastructure boom is having dramatic results at steel maker POSCO (NYSE:PKX). The company will continue to see high demand for its products as governments in these nations spend big bucks building out their nations backbones.

Bottom Line
As investors look for growth internationally, South Korea should not be ignored. With the nation's focus on high technology, it is quickly emerging as an exporting superstar. Investors looking for a high growth emerging market, but with some developed market tendencies, South Korea fits the bill. Portfolio additions can be had either through the previous equities or the PowerShares FTSE RAFI Asia Pacific ex-Japan (NYSE:PAF). (For related reading, take a look at Finding Fortune In Foreign-Stock ETFs.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!