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   Strategies & Market TrendsKorea


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From: Lynn4/29/2008 8:54:17 AM
   of 214
 
29 April 2008 ? 24 pages
Korea Kimchi Discovery #22
Potential Short Squeeze

? KOSPI Hurdle — We estimate that foreign investors have been shorting Korean
stocks between 1650 and 1850 on the KOSPI. If the KOSPI exceeds the 1870
level, we expect the start of a short squeeze.

? Magnitude of Foreign Shorting — On our calculations, foreigners have
cumulatively shorted about W8.7tr YTD, accounting for 63% of foreign net
selling. Total outstanding short balance is W26tr, or 14% of foreign ownership.

? Shorted Sectors — As a proportion of foreign holdings, the outstanding short
balance is the highest for the securities sector, followed by autos, shipping,
shipbuilding, industrials, and construction. We see very little short balance for
the telco, refinery, insurance, utility, consumer, and tech sectors. Hence, if the
market continues to rally, industrial sectors such as shipbuilding and
construction and the securities sector may outperform on a short squeeze.

? Potential Gainers in Unwinding of Shorts— Valuations are low, earnings
outlooks are positive, and near-term catalysts are visible for the following
heavily shorted stocks: Kia Motors, Doosan Construction, Hyundai Mipo,
Hyundai Motor, Taihan Electric Wire, and Hyundai Heavy.

[snip to end]

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From: Staranalyst884/30/2008 11:55:04 AM
   of 214
 
POSCO - still in Warren Buffet's portfolio?

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From: Lynn5/1/2008 9:46:53 AM
   of 214
 
Elite Korean Schools, Forging Ivy League Skills
Seokyong Lee for The New York Times
Published: April 27, 2008

SEOUL, South Korea — It is 10:30 p.m. and students at the elite Daewon prep school here are cramming in a study hall that ends a 15-hour school day. A window is propped open so the evening chill can keep them awake. One teenager studies standing upright at his desk to keep from dozing.

A student and teacher at an elite South Korean school, the Minjok Leadership Academy, where sights are set on the Ivy League. More Photos »
Kim Hyun-kyung, who has accumulated nearly perfect scores on her SATs, is multitasking to prepare for physics, chemistry and history exams.

“I can’t let myself waste even a second,” said Ms. Kim, who dreams of attending Harvard, Yale or another brand-name American college. And she has a good shot. This spring, as in previous years, all but a few of the 133 graduates from Daewon Foreign Language High School who applied to selective American universities won admission.

It is a success rate that American parents may well envy, especially now, as many students are swallowing rejection from favorite universities at the close of an insanely selective college application season.

“Going to U.S. universities has become like a huge fad in Korean society, and the Ivy League names — Harvard, Yale, Princeton — have really struck a nerve,” said Victoria Kim, who attended Daewon and graduated from Harvard last June.

Daewon has one major Korean rival, the Minjok Leadership Academy, three hours’ drive east of Seoul, which also has a spectacular record of admission to Ivy League colleges.

How do they do it? Their formula is relatively simple. They take South Korea’s top-scoring middle school students, put those who aspire to an American university in English-language classes, taught by Korean and highly paid American and other foreign teachers, emphasize composition and other skills crucial to success on the SATs and college admissions essays, and — especially this — urge them on to unceasing study.

Both schools seem to be rethinking their grueling regimen, at least a bit. Minjok, a boarding school, has turned off dormitory surveillance cameras previously used to ensure that students did not doze in late-night study sessions. Daewon is ending its school day earlier for freshmen. Its founder, Lee Won-hee, worried in an interview that while Daewon was turning out high-scoring students, it might be falling short in educating them as responsible citizens.

“American schools may do a better job at that,” Dr. Lee said.

Still, the schools are highly rigorous. Both supplement South Korea’s required, lecture-based national curriculum with Western-style discussion classes. Their academic year is more than a month longer than at American high schools. Daewon, which costs about $5,000 per year to attend, requires two foreign languages besides English. Minjok, where tuition, board and other expenses top $15,000, offers Advanced Placement courses and research projects.

And, oh yes. Both schools suppress teenage romance as a waste of time.

“What are you doing holding hands?” a Daewon administrator scolded an adolescent couple recently, according to his aides. “You should be studying!”

Students do not seem to complain. Park Yeshong, one of Kim Hyun-kyung’s classmates, said attractions tended to fade during hundreds of hours of close-quarters study. “We know each other too well to fall in love,” she said. Many American educators would kill to have such disciplined pupils.

Both schools reserve admission for highly motivated students; the application process resembles that at many American colleges, where students are judged on their grade-point averages, as well as their performance on special tests and in interviews.

“Even my worst students are great,” said Joseph Foster, a Williams College graduate who teaches writing at Daewon. “They’re professionals; if I teach them, they’ll learn it. I get e-mails at 2 a.m. I’ll respond and go to bed. When I get up, I’ll find a follow-up question mailed at 5 a.m.”

South Korea is not the only country sending more students to the United States, but it seems to be a special case. Some 103,000 Korean students study at American schools of all levels, more than from any other country, according to American government statistics. In higher education, only India and China, with populations more than 20 times that of South Korea’s, send more students.

“Preparing to get to the best American universities has become something of a national obsession in Korea,” said Alexander Vershbow, the American ambassador to South Korea.

(Page 2 of 2)

Korean applications to Harvard alone have tripled, to 213 this spring, up from 66 in 2003, said William R. Fitzsimmons, Harvard’s dean of admissions. Harvard has 37 Korean undergraduates, more than from any foreign country except Canada and Britain. Harvard, Yale and Princeton have a total of 103 Korean undergraduates; 34 graduated from Daewon or Minjok.

Skip to next paragraph
Enlarge This Image

Seokyong Lee for The New York Times
Students at the Minjok school do participate in some physical activities, but they rarely take a break from their studies. More Photos >

Multimedia
Slide Show
South Korea's Top Students This year, Daewon and Minjok graduates are heading to universities like Stanford, Chicago, Duke and seven of the eight Ivy League universities — but not to Harvard. Instead, Harvard accepted four Korean students from three other prep schools.

“That was certainly not any statement” about the Daewon and Minjok schools, Mr. Fitzsimmons said. “We’re alert to getting kids from schools where we haven’t had them before, but we’d never reject an applicant simply because he or she came from a school with a history of sending students to Harvard.”

South Korea’s academic year starts in March, so the 2008 class of Daewon’s Global Leadership Program, which prepares students for study at foreign universities, graduated in February.

One graduate was Kim Soo-yeon, 19, who was accepted by Princeton this month. Daewon parents tend to be wealthy doctors, lawyers or university professors. Ms. Kim’s father is a top official in the Korean Olympic Committee.

Ms. Kim developed fierce study habits early, watching her mother scold her older sister for receiving any score less than 100 on tests. Even a 98 or a 99 brought a tongue-lashing.

“Most Korean mothers want their children to get 100 on all the tests in all the subjects,” Ms. Kim’s mother said.

Ms. Kim’s highest aspiration was to attend a top Korean university, until she read a book by a Korean student at Harvard about American universities. Immediately she put up a sign in her bedroom: “I’m going to an Ivy League!”

Even while at Daewon, Ms. Kim, like thousands of Korean students, took weekend classes in English, physics and other subjects at private academies, raising her SAT scores by hundreds of points. “I just love to do well on the tests,” she said.

As bright as she is, she was just one great student among many, said Eric Cho, Daewon’s college counselor. Sitting at his computer terminal at the school, perched on a craggy eastern hilltop overlooking the Seoul skyline, Mr. Cho scrolled through the class of 2008’s academic records.

Their average combined SAT score was 2203 out of 2400. By comparison, the average combined score at Phillips Exeter, the New Hampshire boarding school, is 2085. Sixty-seven Daewon graduates had perfect 800 math scores.

Kim Hyun-kyung, 17, scored perfect 800s on the SAT verbal and math tests, and 790 in writing. She is scheduled to take nine Advanced Placement tests next month, in calculus, physics, chemistry, European history and five other subjects. One challenge: she has taken none of these courses. Instead, she is teaching herself in between classes at Daewon, buying and devouring textbooks.

So she is busy. She rises at 6 a.m. and heads for her school bus at 6:50. Arriving at Daewon, she grabs a broom to help classmates clean her classroom. Between 8 and noon, she hears Korean instructors teach supply and demand in economics, Korean soils in geography and classical poets in Korean literature.

At lunch she joins other raucous students, all, like her, wearing blue blazers, in a chow line serving beans and rice, fried dumpling and pickled turnip, which she eats with girlfriends. Boys, who sit elsewhere, wolf their food and race to a dirt lot for a 10-minute pickup soccer game before afternoon classes.

Kim Hyun-kyung joins other girls at a hallway sink to brush her teeth before reporting to French literature, French culture and English grammar classes, taught by Korean instructors. At 3:20, her English language classes begin. This day, they include English literature, taught by Mani Tadayon, a polyglot graduate of the University of California at Berkeley who was born in Iran, and government and politics, taught by Hugh Quigley, a former Wall Street lawyer.

Evening study hall begins at 7:45. She piles up textbooks on an adjoining desk, where they glare at her like a to-do list. Classmates sling backpacks over seats, prop a window open and start cramming. Three hours later, the floor is littered with empty juice cartons and water bottles. One girl has nodded out, head on desk. At 10:50 a tone sounds, and Ms. Kim heads for a bus that will wend its way through Seoul’s towering high-rise canyons to her home, south of the Han River.

“I feel proud that I’ve endured another day,” she said.

The schedule at the Minjok academy, on a rural campus of tile-roofed buildings in forested hills, appears even more daunting. Students rise at 6 for martial arts, and thereafter, wearing full-sleeved, gray-and-black robes, plunge into a day of relentless study that ends just before midnight, when they may sleep.

But most keep cramming until 2 a.m., when dorm lights are switched off, said Gang Min-ho, a senior. Even then some students turn on lanterns and keep going, Mr. Gang said. “Basically we lead very tired lives,” he said.

Students sometimes report for classes so exhausted that Alexander Ganse, a German who teaches European history, said he asked, “Did you go to bed at all last night?”

“But we’re not only nerds!” interrupted Choi Jung-yun, who grew up in San Diego. Minjok students play sports, take part in many clubs and even have a rock band, she said. Ambassador Vershbow, who plays the drums, confirmed that with photographs that showed him jamming with Minjok’s rockers during a visit to the school last year.

There are other hints of slackening. A banner once hung on a Minjok building. “This school is a paradise for those who want to study and a hell for those who do not,” it read. But it was taken down after faculty members deemed it too harsh, said Son Eun-ju, director of counseling.

nytimes.com

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From: Lynn5/3/2008 11:27:01 AM
   of 214
 
Korea’s Big 3 Mobile Phone Makers Compete in Japan

english.etnews.co.kr

2008/05/01 By Yang, Jong-seok

The Korean mobile phone makers are increasing their market shares in the global market. Now, they are trying to show the same growth in the Japanese market.

On April 30, market observers said that Samsung Electronics, LG Electronics and Pantech Group decided to double their sales in the Japanese market by taking a chance coming with the change of the Japanese market.

The change is given by NTT Docomo, Japan’s largest mobile carrier, who once said that it will suggest a guideline to help mobile phone makers manufacture simple calling phones by separating the cutting-edge technology for mobile internet from the basic OS. Also, the Japanese makers like Mitsubishi, Sanyo and Sony Ericsson are reducing or withdrawing the mobile phone manufacturing business.

LG Electronics supplying mobile phones to NTT Docomo set the target of 700,000 units for this year. This is a double increase from a year before. The company said that the chocolate phone, its global hit product, will be launched to the Japanese market, the last market in the world. The global fandom of the chocolate phone will attract Japanese consumers’ interest. It plans to roll out wine color chocolate phones to meet the preference of Japanese consumers.

Managing Director Ma Chang-min of LG Electronics said, “The chocolate phone has been sold 200,000 units in only five months, showing the good performance even at the beginning stage. We will increase the volume to the Japanese market by a double.”

Pantech Group, supplying its handsets to KDDI, the 2nd largest carrier in Japan, is also preparing its new 3G products to increase the share in the Japanese market. The company was the first maker who entered the Japanese market in 2005. Since then, it has drawn consumers’ interest by targeting elderly consumers and providing multi-functional handsets.

Pantech Group has rolled out au W61PT, its 3G slide phone with the sophisticated design for Japanese consumers, in last February, increasing its influence on the market. It plans to surpass 1 million units, up 20% from a year earlier.

Samsung Electronics weighs the brand power more than the growth of sales. Samsung has supplied its 3G handsets to Softbank through Vodafone Global since 2006. To date, as many as 10 models were rolled out. Particularly, its 707SC model has been sold 400,000 units. An official of Samsung Electronics said, “Japanese consumers prefer the advanced technology as well as the sophisticated design. They are the most critical consumer in the world. Therefore, we are trying to establish our brand image stronger rather than focusing on the sales.”

[eom]

Originally posted by slacker711 here:

Message 24553905

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To: Staranalyst88 who wrote (182)5/7/2008 7:43:44 AM
From: Lynn
   of 214
 
Berkshire's Still Bullish on POSCO and Korea
by: FP Trading Desk posted on: May 07, 2008

Warren Buffett thinks Korea’s stock market is probably one of the most attractive in the world.

He said:

If you were going to buy indexes of the top 25 world markets you would have it in the top half of the class and likely much higher.

He also said he would buy more of the Korean steelmaker – POSCO (PKX) if the price was attractive.

Mr. Buffett said:

We certainly are comfortable investing in Korea, as evidenced by our Posco investment,” and additional investments in the country are “not inconceivable. We like the ethos of Korea for shareholders and we like the performance of the businesses.

He also said the Korean stock market got about as cheap as any stock market he’s seen in his lifetime, in the period a couple of years before Berkshire bought in.

Vice chairman Charlie Munger said:

I think POSCO is the best steel company in the world and I think number two is a significant step behind.

Berkshire Hathaway has reported it concluded 2007 with a $2.14-billion stake in POSCO, or 4.5%, and it paid only $572-million for the investment.

[Jeff Hull, a financial and investment advisor with Berkshire Securities Inc. (a subsidiary of Manulife Financial) is the Financial Post’s insider to Warren Buffett and his company’s AGM.]

seekingalpha.com

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From: Paul Kern5/10/2008 7:54:43 AM
   of 214
 
Mobius Says Korean Stocks Will Outperform, Won Cheap (Update4)

By Chan Tien Hin and Kevin Cho
Enlarge Image/Details

May 9 (Bloomberg) -- South Korea's won, the world's worst performing major currency this year, is undervalued by about 8 percent and the nation's stocks should outperform, said Mark Mobius, who manages emerging-market shares at Templeton Asset Management Ltd.

``Korean stocks are cheaper than the average emerging markets,'' Mobius said at briefing in Seoul today. ``The currency is somewhat undervalued.''

The benchmark Kospi index fell 3.9 percent this year to trade at 13 times estimated earnings, compared with a multiple of 15 for the MSCI Asia Pacific Index. South Korea's won has dropped 12 percent in 2008 while five-year government bond yields have fallen almost half a percentage point. The central bank yesterday said it plans to lower its growth forecast and signaled it wants a weaker currency to help boost exports.

President Lee Myung Bak, who won a landslide victory on Dec. 19, wants to boost economic growth to 7 percent and double per capita income to $40,000 by 2017. He pledged in February to cut taxes and speed up deregulation in South Korea, which was forced to seek a bailout from the International Monetary Fund in the 1997-98 Asian financial crisis.

``Since 1997, Korea has actually outperformed emerging markets in general and I think that is going to continue, especially as a result of the kind of reforms that the government is instituting now,'' Mobius said.

Templeton prefers materials, chemicals and capital goods- related stocks in South Korea, and likes GS Holdings Corp., which operates unlisted GS Caltex, the nation's second-largest oil refiner, Mobius said.

Bonds Decline

The won is set for its biggest weekly decline in two months after Bank of Korea Governor Lee Seong Tae yesterday said the country's trade deficit will widen. Korean bonds are headed for their biggest decline in six weeks as investors stepped up sales after the central bank said record oil prices and a weakening currency are adding to inflation.

``Economic growth seems to be slowing significantly,'' Lee said yesterday at a media conference in Seoul. ``It seems rising oil, food and other commodity prices, coupled with a U.S. economic slowdown, are gradually affecting the domestic economy. The trend of slowing growth would continue.''

The benchmark five-year yield has dropped to 5.29 percent from 5.78 percent at the start of the year on concern economic growth will slow. Bank of Korea policy makers left the nation's interest rate at 5 percent yesterday.

Market ``Shock''

``The market is still in shock, digesting the signal from the governor yesterday that rate cuts won't come anytime soon,'' said Kong Dong Rak, a fixed income strategist with SK Securities Co. in Seoul. ``Those who aggressively bet on a cut are rushing to dump their holdings.''

South Korea's producer-price inflation accelerated 9.7 percent in April from a year ago, the fastest pace in more than nine years, because of rising raw-material costs, the Bank of Korea said today.

Separately, Mobius said the gap between prices of Chinese shares listed in Hong Kong and on the mainland will narrow. Yesterday he said in a Bloomberg Television interview in Seoul that he plans to invest about 20 percent of his fund's emerging- markets assets in the Middle East, North Africa and Central Asia in the next three to five years, from about 2 percent now.

Mobius's $394 million Templeton Emerging Markets Fund, introduced in 1987, gained 23 percent in the 12 months through yesterday, compared with a 19 percent advance by the MSCI Emerging Markets Index.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net; Kevin Cho in Seoul at kcho2@bloomberg.net.
Last Updated: May 9, 2008 04:34 EDT

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From: Sam Citron5/23/2008 8:43:16 AM
   of 214
 
Korea's Nexon Bets On Sales of Virtual Gear For Free Online Games [wsj]
By NICK WINGFIELD
May 23, 2008; Page B1

The online game company Nexon Holdings Co. has won legions of fans on its home turf in South Korea. The company estimates nearly a third of the country's population of more than 49 million has played Kart Rider, an addictive, anime-style online racing game from Nexon that allows youngsters to customize their vehicles and chat with friends.

Now Nexon is making a bigger play for gamers in North America, bringing with it an innovative approach to making money that U.S.-based game makers like Electronic Arts Inc. are scrambling to emulate.
[art]
Nexon Holdings
Nexon will release its 'Sugar Rush' game in North America.

Unlike the traditional approach, Nexon makes its games free to download to personal computers and to play. The company makes money by charging customers anywhere from 30 cents to $25 each for virtual "items" to enhance their game experiences, including everything from souped-up vehicles to wacky hairstyles for in-game characters. Later this year, Seoul-based Nexon will release its first game created in North America, Sugar Rush, in an attempt to further boost its local appeal.

The in-game purchases add up to a big, fast-growing business. Prepaid cards used to buy Nexon game items are now the second best-selling entertainment gift card at Target Corp. stores in the U.S., after cards for Apple Inc.'s iTunes Store, Target says.

Closely held Nexon says it had a $75 million profit on $230 million in revenue in 2005, the most recent year for which the company has released its global sales. That's up from a $35 million profit on $110 million in revenue the prior year. By comparison, EA, the largest world-wide game publisher by sales, posted a $236 million profit on revenue of $2.95 billion for the fiscal year ended March 31, 2006.

Nexon declines to say whether it has plans for an initial public offering. Interest in videogames has intensified with the runaway sales success of Grand Theft Auto IV launched last month by Take-Two Interactive Software Inc. (Please see related article on page C2.)

Nexon's biggest hit in the U.S. so far is MapleStory, an online role-playing game popular with teenagers in which players assume the identities of warriors, magicians and thieves and collectively fight monsters. The game has 85 million users globally, of which 5.9 million are registered in the U.S. Last year players world-wide bought more than 1.3 million articles of clothing and more than one million hair makeovers for their MapleStory characters. Nexon's U.S. revenue last year more than tripled to $29.3 million from $8.5 million the prior year.

Socializing with other users is a big part of the appeal of Nexon games, which is why players are willing to fork over real money for in-game status symbols. In MapleStory, players can pay between $20 and $29 to marry their avatars to each other in elaborate ceremonies attended by other in-game buddies, including a Las Vegas-style bash officiated by an Elvis Presley impersonator.

"These games are as much Facebook as they are raw videogames," says Evan Wilson, an analyst at Pacific Crest Securities in Portland, Ore. "There's a network effect -- the more people you get to play, the more fun the game becomes."

While revenue from sales of virtual items is still estimated to be a small part of the more than $40 billion global games market, it is growing quickly and could broaden the audience for games by eliminating the hefty price tags that users must pay for typical game-playing consoles and PC game software sold in retail stores. Vivendi SA's World of Warcraft, one of the most successful online games, costs most users about $15 a month to play, though few other games have managed to approach its global audience of about 10 million subscribers.

"We sell social experiences, not packaged products," Min Kim, vice president of marketing at Nexon's U.S. division.

Some big Western games publishers are starting to mimic Nexon and other Asian game companies that sell virtual goods, in a potential threat to their businesses. EA of Redwood City, Calif., has started giving away its FIFA soccer game in Korea, in part because piracy there hurt retail sales of the product. Instead it charges players for new uniforms and other character enhancements. Later this year, EA will release a free, cartoonish combat game, Battlefield Heroes, that lets users buy weapons and other gear.

A big test for Nexon will come with this year's release of its first game aimed at the North American market, Sugar Rush, in which players brawl with each other as they try to gobble up virtual coins. The game is being made by a team of Nexon workers in Vancouver, Canada, including Steve Rechtschaffner, a former competitive freestyle skier who helped to create EA's popular SSX skiing game during a 12-year career at the games publisher.

Mr. Rechtschaffner, now chief creative officer at Nexon Publishing of North America, predicts more and more consumer dollars will shift toward free online games and away from traditional games costing $60 each. "I think we're going to become television to their film," he says. "There will always be room for big blockbusters, but there will be less and less of them. I think we'll reach a much, much broader audience."

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From: Lynn5/26/2008 2:43:18 PM
   of 214
 
Korea Kimchi Discovery #23
Oil Shock: Downside Risks to Margin Expectations (C)

? KOSPI risks on margins and costs – We see the biggest threats to Korean stock
valuations in potential disappointment on margins due to high expectations
(currently consensus expects rising OPM until 3Q) and surging oil prices (WTI:
$133.2/bbl as of May 21 vs. consensus estimate of $97/bbl for 2008).

? Macro impact of rapidly rising oil prices – Sharp increases in oil prices will
likely trigger further inflation, a deepening current account deficit (8% of GDP
if oil price rises to $200/bbl), and squeezed profit margins, especially for SMEs.
Interest rates would likely rise, which would negatively impact Korean banks.

? Who can pass on margin pressures? Steel, construction, industrial, shipbuilders,
insurers, and complex refiners are more defensive in a rising oil price
environment due to either pricing power, cost restructuring or mix
improvement.

? Which sectors are most vulnerable? Utilities, chemical, tourism, telecoms,
banks, consumer, auto, and tech sectors are relatively more vulnerable to
rising oil prices and an inflationary environment.

? Investment strategy in a rising oil price environment – Defensive: POSCO,
Samsung Eng, GS E&C, Doosan Heavy, Hyundai Heavy, Hyundai Marine & Fire,
and S-Oil. Vulnerable: KEPCO, Honam Petro, Hana Tour, Hotel Shilla, KTF,
Kookmin Bank, Shinsegae, Hite, Orion, Cheil Ind, SDI, TEW, and Kia Motor.

[end of copy/paste]

This is a 56 page research report that has a LOT of charts, graphs, and discussion. If anyone here knows someone with access to C research, ask them to get hold of it for you.

A quote for HYHZF at C for this as the most recent research report.

Lynn

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From: Paul Kern6/18/2008 11:58:04 PM
   of 214
 
MSCI May Add Israel, Korea as Developed Countries (Update1)

By Fabio Alves and Tal Barak

June 19 (Bloomberg) -- MSCI Inc. will decide within 12 months whether to reclassify South Korea and Israel as developed countries, elevating them from its emerging market indexes.

MSCI, whose equity gauges are used by managers overseeing a combined $3 trillion, will also consider dropping Argentina and Colombia from the emerging market classification. United Arab Emirates, Kuwait and Qatar may be raised to emerging markets from their frontier market status after a consultation process.

The decisions will be based on each country's economic development and the ``accessibility of its market, including the efficiency of its operational framework, as well as on the role of geopolitical risk,'' MSCI said in a press release.

South Korea is the third-largest developing nation in MSCI's stock benchmarks, representing 13.1 percent of the MSCI Emerging Market Index, according to data compiled by Bloomberg. Israeli stocks account for 2.43 percent of the MSCI Emerging Markets Index, according to Bloomberg data.

South Korean equities have a capitalization of 745 trillion won ($727 billion) on a so-called free-float adjusted basis, which includes only companies that overseas investors can readily buy and sell. The Kospi index, the nation's stock benchmark, has fallen 6.5 percent this year.

An MSCI upgrade to developed status for South Korea may not have lasting benefits for the nation's stocks because interest among developed-market investors would be confined to only the largest companies by value, Citigroup Inc. said in April.

`Small Fish'

``It is possibly better to be a big fish in a small pond rather than a small fish in a big pond,'' Paul Chanin, a Singapore-based analyst at Citigroup, wrote in a note to clients on April 21. FTSE Group, MSCI's smaller rival, said in September that it will likely promote South Korea to ``developed'' in 2008.

An upgrade by MSCI would probably attract net buying of up to $7.7 billion in South Korea by funds that track the indexes, Chanin wrote at the time.

MSCI said today that institutional investors ``remain concerned with the lack of full convertibility of the Korea won, including the lack of an efficient offshore market for the currency.''

Israel, which won developed status from FTSE Group in September, is headed for the first annual stock market decline since 2002. The benchmark TA-25 Index has lost 7.3 percent this year.

Final Ruling

A final decision on Israel and South Korea will be made no later than June 2009, MSCI said.

Argentina and Colombia may be dropped from their emerging markets status ``unless significant improvements in the relevant capital flow restrictions are observed,'' MSCI said.

So-called frontier markets typically have less developed economies and financial markets than emerging markets, and have more restrictions on foreign stock ownership.

Argentina's Merval index lost 7.6 percent over the past year, while Colombia's IGBC has dropped 10 percent.

Jordan, an emerging market, will be dropped to the frontier category at the end of November, MSCI said.

To contact the reporters on this story: Fabio Alves in New York at falves3@bloomberg.net; Tal Barak in Tel Aviv at tbarak@bloomberg.net.
Last Updated: June 18, 2008 19:19 EDT

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From: Paul Kern8/6/2008 11:56:55 PM
   of 214
 
Bank of Korea Raises Rate to 5.25% to Curb Inflation (Update3)

By William Sim

Aug. 7 (Bloomberg) -- The Bank of Korea unexpectedly raised its benchmark interest rate to an eight-year high of 5.25 percent, saying the fastest inflation in a decade poses a greater threat than slowing economic growth.

Central bank Governor Lee Seong Tae boosted the seven-day repurchase rate by a quarter point in Seoul today, the first increase in 12 months. Just 6 of the 19 economists surveyed by Bloomberg forecast the move, with the rest seeing no change.

Stocks extended losses on concern the highest borrowing costs since early 2001 will cool an economy growing at the weakest pace in a year. Lee, who joins policy makers from India to Indonesia in raising rates as soaring fuel and food costs fan inflation, may now stand pat to avoid further damping consumer spending and company profits.

``Today's decision was a prudent, necessary step to ensure that inflationary expectations remain under control,'' said Robert Subbaraman, chief Asia economist at Lehman Brothers Holdings Inc. in Hong Kong. ``It will be a one-shot increase: policy focus will start to move away from inflation towards growth concerns later this year.''

Consumer prices climbed 5.9 percent in July from a year earlier, overshooting the central bank's target for the ninth straight month. The bank aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.

``Inflation will likely remain quite high in the coming months,'' Governor Lee told reporters today. He said inflation probably will exceed the bank's forecast of 5.2 percent in the second half of the year.

Government Concern

The government said earlier today the economy is weakening as consumer spending slows. ``We need to place priority in stabilizing ordinary people's lives and creating more jobs,'' the finance ministry said in its monthly report.

The Kospi index of stocks dropped 1.4 percent to 1,556.19 at 12:20 p.m. in Seoul. The won rose 0.1 percent to 1,015.25 against the dollar. The yield on the five-year government bond increased 3 basis points to 5.74 percent.

``Today's decision is likely to do more harm than good,'' said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. ``Economic growth already looks set to decelerate sharply over the second half of the year.''

Ssangyong Motor Co., the South Korean unit of China's biggest automaker, reported that domestic sales slumped 67 percent in June from a year earlier. Local sales at Hyundai Motor Co., Korea's largest carmaker, slipped 0.6 percent in the second quarter.

Mounting Pessimism

Households were at their most pessimistic in almost four years in June and manufacturers' confidence for August sank to the lowest in three years. Factory output increased 6.7 percent in June from a year earlier, the smallest gain in nine months.

Adding to the central bank's concerns, the won's 8 percent decline against the dollar this year has made imported goods more expensive and exacerbated inflation pressures. Import prices surged 49 percent in June from a year ago, the biggest gain in more than 10 years.

``The rate hike should partly help support the currency,'' Lehman's Subbaraman said. ``The weakening won has been adding more import-price pressure and today's rate increase should help ease that.''

The central bank is estimated to have spent more than $12 billion since the end of May to boost the value of the won and cool inflation, said Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul.

``The pace of intervention in itself was clearly unsustainable over the long term, given the BOK's limited reserve pool,'' HSBC's Neumman said. ``The hike in the base rate should therefore be interpreted as a complement to the authorities' policy of supporting the exchange rate.''

The Bank of Korea also boosted the interest rate on the funds it makes available for loans to small businesses by a quarter-point to 3.25 percent.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net
Last Updated: August 6, 2008 23:24 EDT

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