Korean confidence riding high


The unresolved Hynix saga is one cloud on Korea's business confidence horizon

Alex Frew McMillan
CNN Hong Kong

SEOUL, South Korea (CNN) -- South Korean business confidence has tested another record high, a leading corporate lobbying group reported on Monday.

The Federation of Korean Industries, which represents South Korea's business conglomerates, says its business survey index hit 143.0 for May.

"As you know, our Korean economy is recording good signals," Yoo Jae-joon, the head of the economic research team that conducts the survey, told CNN.

"There are various [strong] indicators, especially domestic consumption, and recently exports are rebounding."

The May figures are the highest reading since the FKI started tracking the data in 1975. It beats the previous record of 141.9 in March, via a slight dip to 140.8 in April.

'We are confident for our economy'

The group comes up with the index by surveying executives at 600 companies. The reading would be 100 if the same number of companies believe the economy is getting better as believe it is getting worse.

The stock market has been riding high in Seoul this year, where it has been the best performer among the largest Asian stock markets. Only relatively tiny exchanges such as Indonesia have outdone South Korea's 27 percent rise.

International fund managers credit post-crisis corporate restructuring that they say has gone further in Korea than anywhere else in Asia.

But that confidence has taken a knock in the last week, with the collapse of Micron Technology's attempts to buy most of Hynix Semiconductor.

Hynix stock on Monday set unpredecented lows, as the government says it is willing to force the company into receivership if its board does not accept a carve-up of the chipmaker, to fetch a better price (full story).

But at the same time, creditors of bankrupt Daewoo Motor Co. finalized the sale of most of that company to General Motors of the United States.

"I think that Hynix and Daeoo Motor are [each] company's problem," Yoo said. "Our survey shows a record of the Korean economy."

Central bank meeting on Tuesday

Yoo added that it was hard to trace April's record high confidence to the reforms pushed through by President Kim Dae-jung's administration.

International investors have praised Kim's attempts to force the conglomerates, known as chaebol, to sell off operations to tackle their large debt loads. But those reforms have also been challenged by Korea's labor movement, which fears lost jobs, particularly when Korean subsidiaries are sold to multinationals.

Yoo said it is tough to measure the effect of long-term reforms on business confidence. The jump in May confidence over March was more likely attributable to short-term factors like a rebound in exports, he said.

"We are confident for our economy," he added.

There are some suggestions that the economy may be getting ahead of itself in South Korea. The central Bank of Korea's policy board meets on Tuesday to discuss interest rates. Analysts expect the board to leave rates steady.

With a separate survey, the Korea Chamber of Commerce and Industry reported over the weekend that 72 percent of manufacturers do not believe the economy is overheating.

Of that, 29 percent see the Korean economy as steady and 44 percent say it is recovering sluggishly. Exactly 25 percent of companies say the economy is beginning to overheat, while 3 percent say it is already boiling over.

Hynix stock ended at a record low finish on Monday, down 12.4 percent to 695 won. That helped the main Seoul index, the Kospi, fall 3.48 percent to close at 826.87.