So-called linkers due June 2023 lost 1.8 percent this month, data compiled by Bloomberg show. Notes maturing in 2021 indicate inflation of 1.56 percent over their lifetime, less than the Bank of Korea’s target of 2.5 percent to 3.5 percent through 2015. Governor Lee Ju Yeol lowered the benchmark rate to 2.25 percent from 2.5 percent on Aug. 14 and said price pressures are “not high.”
The first reduction in borrowing costs since May 2013 came after the BOK lowered its living cost estimates and Finance Minister Choi Kyung Hwan unveiled an 11.7 trillion won ($11.5 billion) spending plan to boost the slowest growth in more than a year. While most analysts predict Lee will keep interest rates unchanged, Samsung Asset Management Co. and Eastspring Asset Management Co. see room for a further cut.
“Another rate cut within the year is possible as one isn’t enough to support the government’s growth push,” Jack Kim, who helps manage 700 billion won of fixed-income assets for Eastspring in Seoul, including Korean linkers, said in an Aug.26 phone interview. “Low inflation should make it feasible.”
Falling interest rates, low inflation, a government flush with cash and keen to promote growth results in South Korea being an interesting prospect right now. The strength of the Won throughout the last year, especially during a time when currency market volatility has been an issue for a number of neighbouring countries is an additional positive consideration from the perspective of foreign investors.
South Korea’s stable of highly successful world class companies is a logical place to start one’s investigation of the domestic stock market but neither the major electronics companies, at 22% of the Index, nor the Korean automakers are responsible for the recent return to outperformance of the Kospi.
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