Four years ago South Korea was the Argentina of today. It lurched from one currency crisis to the next, its biggest companies burdened by towering debts and its political system in gridlock. Economists wrote Korea off as a basket case -- in a worse state even than its sickly neighbor Japan.
However, Korea has confounded the pessimists this year -- and the tiny number of British investors who believed in the possibility of a rapid recovery have been rewarded with the best returns achieved anywhere in the world.
The top performing unit trust this year -- of the 1,969 on offer to private investors -- was the JP Morgan Fleming Korea fund which, according to figures from Standard & Poor's, rose 45 percent during the year. Korean funds took three out of the top four places, with trusts from Barings and Schroders also recording strong gains.
Propping up the bottom of the table is a roll-call of technology funds from some of the biggest asset management companies -- Aberdeen, Gartmore, M&G and Edinburgh all managed to lose more than 50 percent of their investors' money this year.
Korea has restructured its economy more successfully than any other Asian country, accepting the painful medicine of corporate collapses such as Daewoo far more readily than Japan, which has allowed its industrial behemoths to stagger onwards. While Japan, Taiwan and Hong Kong all fell into recession this year, Korea's GDP rose 2.7 percent.
The Seoul stock market jumped 35 percent in 2001, outstripping every other with the exception of Russia. Korean companies claimed eight spots on the list of top-performing global stocks this year.
Retailers led the way, with Hyundai department stores posting a 239 percent gain on its share price.
The surprise for investors is how far Korea has surged ahead since Sept. 11. Exports account for 46 per cent of Korea's GDP, and the expectation was that Korea, along with other Asian economies would suffer as its biggest market, the US, went into recession.
Sure enough, the Kospi index fell more than 15 percent in the days after Sept. 11. But since then recovery has been dramatic, with the market up more than 40 percent.
Barings says: "The outlook for global demand has now begun to improve. Fiscal and monetary easing under way in the US and elsewhere is expected to lead to a recovery in the second half of next year. These factors help to explain the substantial recovery of the Korean market since Sept. 11."
But there is more to Korea than the international perspective; like Britain, consumer spending is sustaining the economy while its neighbors struggle. One of the biggest holdings is Kookmin Bank which, unlike the state-controlled banks, has avoided pouring money into ailing industrials. Instead it focuses on credit cards, personal loans and mortgages, which are fuelling the Korean consumer boom.
Will the Korean boom continue? Financial advisers generally recommend that small investors steer clear of single-country funds, which are highly volatile. David Choi, who runs the JPMF Korea fund, is also cautious about a repeat of thsi year's gains in 2002. He points to the recent rescue of the near-bankrupt Hynix semiconductor company as a sign that old-style state interference is still strong.
"Hynix's bail-out is not good for long-term market reforms or overcapacity in the semiconductor industry." he said.
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