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Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Jan 07Jan 08Jan 09Jan 10Jan 11COUNTRY REPORT: South KoreaOutlook: PositiveS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) A+ Stable A1 Stable3.25% 3.32% 4.03% 4.33%Economy and Interest Rate OutlookThe South Korean economy remains in good shape, despite the external slowdown. The economygrew by 0.9% quarter-on-quarter in Q2 '11, raising some concerns about the outlook, butnevertheless still solid. Export growth has slowed, but given the boost to Korea's exportcompetitiveness from the weaker won (which is close to the lows against the yen seen immediatelyfollowing Lehman) the country's exporters will continue to claim strong market share in thetechnology sector. Meanwhile the domestic economy shows little sign of being affected by theexternal environment, with luxury consumer goods sectors booming and the property marketrecovering strongly after the government cut taxes on homes. Inflation, as a result, has beensteadily creeping upward, and now poses something of a headache for the Bank of Korea (BoK),which in the face of the problems being seen in the US and Europe, does not want to risk tippingthe domestic economy into a significant slowdown. Given that, and given the fact that import pricesare a significant contributor to the overall inflationary picture, the Bank may decide to becometougher on management of the won. Doing so would not imperil the export sector, which willregardless continue to benefit from the cheapness of the currency (which is by far the weakest inthe region since the onset of the crisis in late 2007) while a stronger currency would empowerdomestic consumers and limit inflation. atthe same time.1,500USD/KRWJPY/KRW (RHS)16.050.040.030.0Industrial production y/y %1,30013.020.010.01,10010.00.0-10.0-20.09007.0-30.02010 2011 (f) 2012 (f)Real Growth (%) 6.2 4.0 3.5CPI (%)* 3.6 4.0 2.5Current account (% GDP) 2.8 1.9 1.7Fiscal balance (% GDP) 1.3 0.5 0.9Government Debt (% GDP) 31.9 31.0 31.0Daily volumesFX Reserves*End of YearSpot FXUSD6bn865.4mn313 bnSource: IMF, S&P, Bloomberg, BarclaysPoliticsPresident: Lee Myung BakNext Presidential election: 2013Tensions between the North and South aresimmering following the confrontations seenearlier in the year, and there is tentativeprogress on restarting nuclear talks. WithParliamentary elections due in April 2012 andthe Presidential election in 2013, domesticpolitics will be the main focus of attention inthe country next year, though.24Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.
Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Jan 05Jan 06Jan 07Jan 08Jan 09Jan 10Jan 11COUNTRY REPORT: TaiwanOutlook: NeutralS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) AA- Stable Aa3 Stable1.88% 0.90% 0.97% 1.27%Economy and Market OutlookTaiwan's GDP expanded by 5.02% y/y (revised) in Q2, down from 6.16% in Q1, as investment felland private consumption growth moderated. Taiwan's externally driven economy faced risingheadwinds in Q3 by weak economic activity in the US and the turmoil in the Eurozone, and thepolicy-driven slowdown in mainland China. Export growth moderated to 7.2% y/y in August, from17.6% in July. In addition, export orders rose by 5.3% y/y in August, down sharply from 11.1% inJuly, led by contraction in electrical machinery. This weaker-than-expected order book signals achallenging outlook in 2012. The unemployment rate still stayed low at 4.36% y/y in August, butmay rise as uncertainties grow. So far, inflation has been well behaved, with CPI at a muted 1.3%y/y in August, and the Central Bank has turned to a dovish stance to hold policy rate unchanged atits meeting in September on the back of rising global growth uncertainties, growing market volatility,and weak market confidence.The Taiwan Dollar (TWD) weakened substantially in September as risk appetite deteriorated, withoreign investors withdrawing more than US$10bn from the equity market, while the Central Banksoftened its monetary stance. The currency will remain under pressure in the short term if globaleconomic expectations worsen, though on a relative value basis the tight management of thecurrency would still mean itwould outperform regionally.3534333231302928USD/TWDTWD/ JPY (RHS)3.83.63.43.23.02.82.62.47.06.05.04.03.02.01.00.0-1.0-2.0-3.0CPI y/y %2010 2011 (f) 2012 (f)Real Growth (%) 10.8 4.5 5.0CPI (%)* 1.2 2.3 1.6Current account (% GDP) 9.4 8.0 8.0Fiscal balance (% GDP) -3.2 -2.5 -2.0Government Debt (% GDP) 40.3 41.6 42.9Daily volumesSpot FXUSD800mPoliticsPresident: Ma Ying-jeouNext election: 2012China-friendly veteran Taiwanese politicianJames Soong announced that he wouldalso run in the coming presidential election.However, his support rating is far behindincumbent President Ma Ying-Jeou andmain opposition leader Tsai Ing-wen.FX Reserves*End of Year400.29bnSource: IMF, S&P, Bloomberg, Deutsche Bank25Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.
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