South Korea is still being touted as an emerging market, but this is increasingly becoming a misnomer.  The country’s demographics are now increasingly negative and the South Korean society is in the throes of a long and painful economic and demographic transition towards an export dependent economy. 

Household debt as a share of GDP and household disposable income remains the highest in Asia.

Consumer credit and housing demand are unlikely to be strong driving forces in the future and the country is going to become increasingly export dependent.  Looking at the age dependency ratio in South Korea, it is going to increase at a parabolic rate in the next two decades. 

Seoul house prices have now fallen for 15 consecutive months, and the cities apartment price index has declined steadily in the past 5 years. This leads many to suggest a turnaround is at hand, but we urge caution.

The Japanese example suggests that this time it might really be different. Recent economic data remains strikingly weak. Industrial output was much weaker than expected in August and capacity utilization hit a three-year low of 73.8%. Equipment investment declined more than 10% YoY. Leading indicators may point to a relative re-bound from below, but structurally the changes towards lower trend growth and entrenched export dependency are permanent.