Robert Hsu, December 29, 2009

One of the World's Most Prosperous Countries

A country in Southeast Asia that you should keep a close eye on is Singapore. Declaring its independence from Malaysia in 1963, Singapore managed to achieve one of the greatest economic success stories in modern history, far surpassing Malaysia in terms of growth.

In fact, Singapore went on to become one of the word's most prosperous countries, thanks to strong international trade. It actually has a per capita GDP that is higher than most developed countries -- in 2008, its per capita GDP clocked in at $51,600.

Without any natural resources, Singapore imports much of its goods, with revenues from exports providing the finds for these imports. As a result, the country relies heavily on exports for economic growth, with its main exports including information technology products, consumer electronics, pharmaceuticals and services. And its main export partners include Malaysia, Hong Kong, Indonesia, China, the United States, Japan and Thailand.

Because the country is a top exporter and importer in the world, it's great that Singapore has easy access to shipping routes. In fact, the country is home to one of the busiest ports in the world -- the Port of Singapore. In fact, it garners more ship traffic than Hong Kong and Rotterdam.

Singapore's export-driven economy proved to be successful, as the country experienced an average 8% economic growth rate between 1960 and 1999. Then, its economy seesawed back and forth in the early 2000s. But between 2004 and 2007, Singapore posted economic growth of 9%, 7.3%, 8.2% and 7.7%, respectively.

Of course, given its reliance on exports, Singapore also fell victim to the global financial crisis in 2008 and 2009. After declining 16.4% in the fourth quarter of 2008, the country's economy contracted 14.6% in the first quarter of 2009.

But like many Asian economies, Singapore bounced back in the second and third quarters. The country posted 21.7% and 14.2% annualized GDP growth in the second and third quarters, respectively. The economy is now expected to contract 2% to 2.5% in 2009, compared with previous forecasts for a 4% to 6% contraction.

And looking out to 2010, Singapore is expected to post economic growth of 3% to 5% -- mainly thanks to an increase in manufacturing, one of the main drivers of economic growth. Plus, you must consider that Singapore's economic turnaround was thanks to increased demand from China – a trend that will likely continue.

Overall, Singapore's economic picture is improving, and as I mentioned before, it's one of the world's most prosperous countries. Despite this, though, I haven't made any recommendations in Singapore to my Asia Edge readers. That's because there aren't many investment opportunities there. But rest assured, as opportunities pop up, I'll be sure to let you know!

Now, along with Singapore, there are a number of Asian economies benefiting from increased demand from China. And South Korea is one such country, as it is located on China's eastern border.

The last time I visited the Korean Stock Exchange, my guide asked me what I believed would be the best course of economic action for Korea. Well, as I told him, in my view the best strategy for South Korea was to integrate its economy with China's. Korean capital and technical expertise combined with the China miracle make a powerful combination -- and we're already seeing this as the China spillover effect boosts South Korea.

In fact, despite its lack of natural resources, South Korea is the fourth-largest economy in Asia, and it's considered one of the Four Asian Tigers, given its robust economic growth from 1960 to 1990 and then again in the 2000s.

While the country dealt with its own economic struggles over the years, South Korea has grown more open to foreign investment and imports in recent years, which has greatly helped the economy grow. In the five years between 2003 and 2007, the country experienced growth of about 4% to 5% annually.

Today, much of South Korea's economic strength is driven mainly by exports, particularly electronics and cars. In fact, about 50% of South Korea's economy is export dependent. So it's good news for the country's economy that overseas shipments rose for the first time in 13 months in November.

And thanks to the rebound in its export sector, South Korea was the first East Asian economy outside of China to recover from the global slowdown -- posting an impressive 3.2% growth in the third quarter!

Looking forward to 2010, South Korea expects growth of about 4.6%, and a long-term goal of 5% expansion between 2011 through 2013. In fact, South Korea's growth is expected to outpace all but China and India among the world's 15 largest economies over the next several years.

Due to the quick pace of the South Korean turnaround, I recently recommended an exciting exporter to my Asia Edge subscribers.

Because of strong demand from China and the United States -- as well as the rest of the world – there's been an incredible turnaround in some of South Korea's major companies. Bellwether companies such as Samsung, LG, and Hyundai have been on a virtual tear of late. In addition, the devaluation of the won against the dollar has given these companies a clear edge over Japanese rivals such as Sony Corp. (NYSE: SNE) -- an Asia Edge short sell that I discussed last week -- and Toyota (NYSE: TM). So while Sony and Toyota have been swimming in red ink, Samsung and Hyundai have posted record earnings.

Despite the positive results that these South Korean companies have shown as of late, they are not listed on U.S. exchanges, making it more difficult for U.S. individual investors to directly invest in them.

South Korea's steel industry is also directly benefiting from a recovery in Chinese and global demand. In fact, steel demand in 2010 will likely be even higher than it was in 2009, which is great news for South Korea's largest steel producer.

This company is one of the best-run steel companies in the world and has historically had one of the most stable performances in the global steel sector. While the company wasn't spared entirely from the decline in the sector due to the global slowdown, it held up much better than its competitors, and has been an excellent turnaround play this year.

And the company is expanding outside of South Korea -- making investments in China, India, Vietnam, Indonesia, and many other emerging economies, all of which present excellent growth prospects for the company.

In addition, the company recently announced plans to invest seven trillion won in green technology and environmental businesses, such as wind power generation, fuel cells, smart grid technology, smart nuclear reactors and synthetic natural gas, by 2018. This also may boost the company's bottom line -- the company aims to reach 10 trillion won in annual sales from this area.

In the third quarter, the company posted robust earnings results -- five times better than the second quarter, thanks to a rebound in industrial demand for steel, especially from China.