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Although the Korean peninsula has been in the news a great deal in recent weeks, the geopolitical focus has overshadowed a strong economic recovery story that puts South Korea in contention to be one of the quickest out of the blocks in the race to escape the global downturn.

The origins of its resilience go back to the Asian financial crisis of 1998. Recent memories of this painful episode have enabled the country to be much better equipped to deal with current economic challenges than many of its western counterparts. As a result, many Korean companies have become very competitive, helped further by the softening of the won, and due to their healthy balance sheets, they are in a strong position to seize investment and acquisition opportunities from neighbouring competitors. Similarly, Korean financial companies do not face the same challenges as those in the west. Moreover, the country's domestic economy continues to improve, thereby further strengthening its fundamentals.

Looking more closely at Korea's recent progress, a number of key trends that have shaped its retail and institutional characteristics can clearly be identified. Roughly 10 years ago, household wealth mainly consisted of real estate. However, the continuing progress of Korea's companies and the development of the country's capital markets has led to equities and fixed income taking an increasing share.

Compared with the developed markets, the equity proportion is still low, but recently more and more households have invested in equity mutual funds (especially overseas products), commodities funds and other financial products. Going forward, Korea's wealth management industry has the potential for high rates of growth.

While the political situation in the Korean peninsula seems to generate a great deal of anxiety and nervousness among foreign investors, the North Korean nuclear crisis has had little impact on corporate activity in Korea and its domestic economy. This issue has always discounted equity valuations in Korea, so investors should not regard this as a new risk.

In addition to encouraging a more sophisticated approach to retail investment, Korea has long been making efforts to promote its capital markets. The government, acknowledging the significance of the capital market in the economy, enacted the Capital Market Promotion Act in 1968. Since then, the Korean government, in cooperation with the financial industry, has continued to push for reforms in this sector to advance the markets to a global level. This resulted in the Capital Market Consolidation Act, which many expect to be a landmark in the history of the country's capital market, which was passed in 2007 and came into effect in February.

Investors can see the effect of this strategy in the growth of the Korean stock market, which had a market capitalisation of $588bn (£358bn) on June 11, an increase of 1.65 per cent from the previous month and 27.81 per cent year-on-year.

Unlike most other countries, Korea's GDP saw modest growth in the first quarter of 0.1 percentage points quarter-on-quarter, but on a year-on-year basis, it experienced a fall of 4.3 percentage points. But industrial production in April increased for the fourth successive month, and consumer and corporate sentiment also firmed. Korea has greatly benefited from bold steps by the Central Bank of Korea to revive the economy, which included historically low interest rates and unprecedented fiscal stimulus measures. The softened currency helped to make Korean exports more competitive and cushioned the impact of falling global demand.

However, like many other economies, there are still external shocks such as the rising price of oil and the further global credit shocks to which Korea is potentially exposed. But on the whole, there is enough evidence to suggest the green shoots of recovery are showing signs of growth. For example, average residential property prices in Korea rose by 0.1 percentage points in May from the month before, following an increase in April of the same amount, which was the first rise for seven months.

In line with other markets, many firms are making efforts to cut costs by shedding jobs, and the unemployment rate in May reached a four-year high - the seasonally adjusted rate increased from 3.7 per cent on the month before to 3.9 per cent in May, which is the highest since September 2005. However, economists have called a bottom in the unemployment rate, and improvements are expected in the near future.

If investors look to the development of the Kospi index compared with the MSCI World index, it is clear this market has rallied strongly over recent days. This sharp increase is similar in nature to the global rally we have seen over recent weeks. There is a belief among many that the worst stage of the crisis is over, and many are cautiously optimistic on the chances of a global recovery. Recent earnings forecasts were overly pessimistic, and there has been an upwards correction to reflect this.

When analysing Korean stocks from a bottom-up perspective, current valuations are supported by strong corporate earnings. It seems safe to say, therefore, there is more scope for the recent rally to continue. If we consider the fact Korean equities underwent a downwards correction due to the North Korean crisis, valuations become even more attractive.

Some believe Korea is in a stage of recovery led by the global economy. It is difficult to predict the speed and scope of the recovery, but a consensus seems to have formed that it is past the worst. Korea's economy is weighted towards export-orientated companies, and the performance of these exporters has an impact on domestic demand. Therefore, there are expectations a global recovery will lead to a recovery in the country's economy and markets.

If investors take out the cyclical element of the economy and try to choose sectors showing structural growth, they would likely select technology for energy conservation. Many companies in Korea are focusing their research and development resources to evolve new technology that will dominate the market in the future. Electric vehicles are an example of this, and there are companies in Korea that are producing world-leading, second-generation batteries for electric cars. Korea will play a big role in the growing market for electric vehicles.

While the rate of growth of the region as a whole has markedly slowed due to the financial crisis, once economic conditions improve and the global financial system starts to function more efficiently, strong growth rates will return. The market is yet to peak.

In looking at the factors driving Korea's progress, it would be remiss not to mention China. Korean companies are able to take advantage of Chinese demand more successfully than their western counterparts given their deep understanding of this market and close proximity. As China will be a significant contributor to global growth, Korea is best positioned to benefit from this. It is likely that other south east Asian nations will soon offer similar opportunities.

Looking to the currency threat, the Korean won will rise from its current levels in the long term. As long as the level and pace of this increase isn't too extreme, there are unlikely to be any significantly negative repercussions on exporters and their earnings. Export-orientated companies in Korea have already factored in this expected rise and adopted very conservative forecasts of future operating conditions.

Although not an emerging economy itself, Korea's geographical proximity with the emerging markets of Asia - and the success companies have enjoyed in other developing regions - means the country is very well placed to benefit from global emerging market growth.

Sung Woo Kim is lead manager of the Mirae Asset Korea Equity fund at Mirae Asset Global Investments