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`Korean manufacturing to reach limit within 5-10 years`

Posted May. 15, 2012 07:21,   


“The legendary success of the Korean manufacturing industry will reach its limit in five to 10 years. The key is the phase thereafter.”

In his recent book “Breakout Nations,” Ruchir Sharma, managing director and head of the global emerging markets equity team at Morgan Stanley, predicted six breakout nations including Korea will spearhead the global economy instead of BRICs (Brazil, Russia, India and China). This positive outlook for the Korean economy came after Jim O`Neal, head of the U.S.-based investment bank`s asset management business, picked Korea, Mexico, Indonesia and Turkey as “growth markets” along with BRICs.

In an email interview with The Dong-A Ilbo, Sharm gave the reasons for his favorable assessment of the Korean economy. Sharma "continues to hold" a positive outlook for the Korean market. “I myself thought up until five years ago that the legendary success of Korea’s manufacturing sector was over, but the success is an ongoing one,” he said, adding, “Generally, the manufacturing sector stops growth when the portion of the sector relative to the overall economy exceeds 10,000 U.S. dollars in per capita real income, but Korea is an exception.”

He said the cultivation of global brands is Korea’s power, and that it has become its competitiveness that completely differentiates the country from other emerging markets. Sharma, however, said, “It will be difficult for the growth engine of the Korean manufacturing sector to continue for more than 10 years,” adding, “Making the service sector mature and galvanize the domestic market will become the challenge.”

He spoke highly of Poland among other emerging markets. The country joined the European Union and is immune to deleveraging, which swept Europe. In Southeast Asia, Sharma picked the Philippines. “The Philippines was the second-largest economic power in Asia up until 40 years ago,” he said, adding, “Rich in natural resources, the Philippines will take off if President Benigno Aquino thoroughly implements a reform drive.”

As for the BRICs, he said several of them still hold growth potential, but it is risky to tie the four countries as a single large market. This means that India, with a per capita income of 1,500 U.S. dollars, and China, with 6,000 dollars, face challenges to growth that are completely different from those of Russia and Brazil, which have average incomes of more than 12,000 dollars. Sharma said, “Brazil and Russia should diversify their growth by going beyond their status as producers of natural resources. India runs the risk of its commitment to reform waning due to complacency with the current situation.”

He predicted Korean stocks will remain positive over the long term. “When U.S. economic indicators displayed a strong showing early this year, foreign investment funds flocked to Korea, the barometer of the world economy, in the first quarter,” adding, “Funds are flowing out from Korea due to the eurozone risk, but since the KOSPI (Korea`s main stock market) is a benchmark of the global stock market, Korea will stand at the center as long as the world economy is sound.”

Sharma warned of volatility in the stock market, however. “Volatility has resurfaced as easy money (funds with low financing cost) that had flooded the U.S. market over the past 10 years has disappeared,” adding, “The expansionary trend of the global economy has been short-lived and the recession has deepened, resulting in the contraction of the bull market phase.”