Korea will present several "investment sweet spots" in 2012, including automobiles and technology, as increasing export demand allows it to catch up with markets like Japan, according to Baring Korea Trust.

Korea will present several "investment sweet spots" in 2012, as increasing export demand allows it to catch up with markets like Japan, according to Baring Korea Trust, the Korea-focused fund arm of the UK's Baring Asset Management.

"Korea is a small country with some extremely large and powerful global brands. Provided global growth continues, the risk/return characteristics of the market and the earnings growth potential look incredibly attractive, with export demand on an upward trend," said HyungJin Lee, investment manager for Baring Korea Trust.

The Japanese yen has been hit by the US and European debt crises and is currently looking to fund its 2012 spending budget through the sale of ¥44.2 trillion ($566 billion) worth of new bonds. While Japan remains the third largest economy in the world, the government has forecast a 0.1 per cent economic decline in the present fiscal year due mostly to the natural disasters of late, the EU and US economic crises, and the strengthening of the yen. 

"The strength of the Japanese yen is giving Korean exports a competitive advantage over their Japanese equivalents," added Lee. He pointed to the car and electronics industries, both of which he is using in his fund. 

"In the car industry we have seen Hyundai gain on Toyota in terms of brand and market share. The same can be said of Samsung in the smartphone and other sectors. Over the next decade, we’ll see further gains by Korea in these and other key value-added sectors as market leadership shifts. The changing technology landscape is having a major impact on the stock selection of the fund as the smartphones/tablet market quickly grows ever larger. Korea benefits from its very strong broadband penetration which will become increasing important as web technologies continue to expand.”

In addition to strong export demand from both emerging and developed markets, Korean overseas builders are also receiving a large amount of interest in the Middle East. According to the International Contractors Association of Korea, Middle Eastern projects accounted for more than half of the $59.1 billion overseas deals by Korean construction firms in 2011, with orders reaching $30 billion.