During the boom years in East Asia, the economy and the stock market were distant cousins. A case in point was South Korea, where the benchmark Kospi index peaked in 1989, while the economy continued to grow at an 8 per cent pace until the outbreak of the Asian financial crisis in 1997. Critics said the Asian corporations were too inefficient and poorly managed to capture the economic story. Now it seems South Korea is turning the model inside out.

Even as trend-line economic growth has fallen to a much lower plateau of 4 per cent, equity returns have picked up significantly. In dollar terms, the Kospi index has risen eightfold since the lows set during the crisis in 1998 and Korea is the only East Asian emerging market to have subsequently hit all-time highs. It’s a new tale of two South Koreas — large companies have never been in better shape while economic growth hasn’t been slower since the 1960s. Continuing their radical transformation from being the wastrels of capital in the past, Korean conglomerates now understand the importance of adding economic value by investing in Research and Development (R&D). South Korea’s R&D expenditure as a share of the economy is one of the highest in the world at 2.6 per cent of its gross domestic product. The focus on moving up the value chain by investing in technology and building global brands is what distinguishes Korean companies from many of their Asian emerging market counterparts that are still stuck in low-margin contract manufacturing businesses.

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