How Will South Korea Change With Moon as Its Next President? (Top 10 Issues)

Can "sexless" Korea Beat the Demographic Cliff and Maintain Its Credit Rating?

South Korean Election: A Win for China, but Late Conservative Resurgence Balances the Outcome

RoK Electoral Politics, the USS Carl Vinson, THAAD and the Rising Risk of Insanity from the DPRK

Corporate Credit Analyst

Alan Greene

Thematic (Sector/Industry)

It's almost a year since my last comment on Korea's sovereign rating when my view was that a rating downgrade was a case of when and not if. Perhaps I am a contra indicator, for in September 2016, S&amp;P raised its rating to AA stable, matching Moody's rating. However, with the clouds still hanging over Korea's economy, I maintain the view that a downgrade is appropriate and that Korea is not worthy of a higher rating than Japan and Taiwan.The negative factors remain - the pressure on the banking system from high household debt, high youth unemployment, pressure on the traditional manufacturing sector and its neighbour's penchant for missile tests. It has also fallen into the almost universal trap of overstimulating the housing market with low interest rates. To cap it all the new president seems to be reading from the tales of the magic money tree.On the positive front, the epithet of sexless Korea may still be deserved but so far this has not translated into a declining total population. Even on the low growth estimate, Korea's population growth rate does not go into reverse before 2020 while Japan's rating and population remain on a downward trend. Furthermore, the increase in retirement age provides a fillip to the size of the Korean workforce. Of course, if there was a 1989 Germany-type event in the peninsula, then the influx from the North would buoy the position of South Korea in the longer-term.The rating could still be maintained by the US rating agencies. With US troops in South Korea supplemented by a carrier group, as tensions with the North have risen, now would not be the time to question South Korea's self-assurance. Furthermore, President Moon, who only took office on 10th May, surely deserves to be given the benefit of the doubt for six months if not a full year.In other words, the agencies have a plausible reason and some unspoken pressure to do nothing with the rating.

It's almost a year since my last comment on Korea's sovereign rating when my view was that a rating downgrade was a case of when and not if. Perhaps I am a contra indicator, for in September 2016, S&amp;P raised its rating to AA stable, matching Moody's rating. However, with the clouds still hanging over Korea's economy, I maintain the view that a downgrade is appropriate and that Korea is not worthy of a higher rating than Japan and Taiwan.The negative factors remain - the pressure on the banking system from high household debt, high youth unemployment, pressure on the traditional manufacturing sector and its neighbour's penchant for missile tests. It has also fallen into the almost universal trap of overstimulating the housing market with low interest rates. To cap it all the new president seems to be reading from the tales of the magic money tree.On the positive front, the epithet of sexless Korea may still be deserved but so far this has not translated into a declining total population. Even on the low growth estimate, Korea's population growth rate does not go into reverse before 2020 while Japan's rating and population remain on a downward trend. Furthermore, the increase in retirement age provides a fillip to the size of the Korean workforce. Of course, if there was a 1989 Germany-type event in the peninsula, then the influx from the North would buoy the position of South Korea in the longer-term.The rating could still be maintained by the US rating agencies. With US troops in South Korea supplemented by a carrier group, as tensions with the North have risen, now would not be the time to question South Korea's self-assurance. Furthermore, President Moon, who only took office on 10th May, surely deserves to be given the benefit of the doubt for six months if not a full year.In other words, the agencies have a plausible reason and some unspoken pressure to do nothing with the rating. 

Korea's AA Rating: Populism Vs Population