It isn’t China

But you are looking in the correct part of the world! The economy in question is South Korea, which has enjoyed an astonishing rebound since it reached a recessionary bottom last winter. The economy wasn’t much affected by the US-led subprime mortgage crisis, which infected many foreign banks, but rather the Asian Tiger was pole-axed by a collapse in world trade in the first three months of this year.

The South Korean won declined by 40% against the US dollar during the 12-month-strecth that ended in February. It has since recovered about half that drop, so it remains undervalued.

The overall outlook on the stock market is even highly upbeat. From its low point in December 2008, the Korea Composite Stock Price Index (KOSPI) is up 65%. Exports have recovered, particularly on the back of surging demand from China – a trading partner that is growing a bit more slowly than Korea, but that has considerably more muscle with 27 times the population.

Korea’s current account balance once again shows a healthy surplus. Fitch Ratings Inc, which had placed Korea on ‘credit watch’ for a possible downgrade from it’s a+ rating, recently announced that the downgrade would be unnecessary and said that Korea could expect to run a budget surplus in 2011.

Its elected pro-business government, led by President Lee Myung-bak in the beginning of 2008 is doing pretty well with the global financial crisis. Since its trade agreement with the United States is on indefinite ‘hold’ in the Congress of US House Speaker Nancy Pelosi, Korea recently signed a similar pact with the European Union, which may boost exports somewhat.

In any case, Korean government spending as a percentage of GDP is one of the lowest of the world’s most affluent developed economies. That means it will be much less of a burden than on the Korean economy that will similar outlays in the higher spending Japan, United States and European Union.

One admittedly annoying reality is that most large Korean companies abolished their dividends during the credit crunch and have yet to restore the payouts. The market, however, is still below its mid-2008 level, when the overall P/E ratio was only 11.