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. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  2. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  3. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  4. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  5. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  6. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  7. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  8. Stock Analysis

    6 Risks International Stocks Face in 2016

    Learn about risk factors that can influence your investment in foreign stocks and funds, and what regions are more at-risk than others.
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
Trading Center