Shoring up productivity is the No. 1 priority for Korea to achieve sustainable growth, the Korea Center for International Finance said yesterday quoting reports from investment banks released this week.

And foreign investors will resume snapping up Korean stocks thanks to improving global market conditions and positive earnings outlook of Korean exporters, it said.

Quoting a report from HSBC, the center said improving small- and medium-sized enterprises’ labor productivity to stand on par with conglomerates is a must for Korea.

The British banking giant said boosting productivity in SMEs will greatly enhance the country’s overall productivity as SMEs make up 90 percent of the overall work force in Asia’s fourth-largest economy.

It said Korean SMEs’ labor productivity is “only one-third of large companies,” and boosting productivity will provide momentum to sustainable growth for the country, which faces the dilemma of diminished investment triggered by global economic slowdown and a dwindling work force due to the aging of the population.

The government’s drive for tax breaks for SMEs and toughening regulations on chaebol’s handling of them could be a good starting point for enhancing SMEs’ productivity, HSBC added.

Quoting a report from Credit Suisse, the center said the Korean stock market will eventually pick up and experience an influx of foreign funds thanks to signs of U.S. economy recovery and a positive outlook for Korean exporters this year.

Credit Suisse said foreign investors dumped a combined $1.62 billion of Korean stocks during the Jan. 2 to March 22 period while they bought a net $11.9 billion of stocks from emerging Asian economies including India, Indonesia, the Philippines, Taiwan and Thailand. But it anticipated they will soon resume purchases of Korean stocks.

“The Swiss-based financial institution said Korea is an attractive market in terms of valuation as the country is one of the most under-owned markets by foreign investors in Asia,” said Lee Jeong-hwa, a research fellow at the center. “It said improving economic conditions in the U.S., expectations for good earnings by Korean automakers, tech firms and utility companies will positively affect related share prices although some risks such as a further weakening of the Japanese yen and the U.S. sequester exist.”

Meanwhile, noting that the Bank of Korea’s consumer sentiment index rose to its highest level in 10 months in March, BNP Paribas said Korean consumer sentiment is showing conspicuous improvement compared to the end of last year and earlier this year.


By Kim Mi-ju [mijukim@joongang.co.kr]