To be sure, they say, Korean shares are at tempting levels and the won is now extremely competitive. But Asia's financial crisis has left Korea's banking system facing a severe liquidity crunch and many corporations are in a perilous state. ``Korea Inc needs about $6 billion monthly to service the debt capital and interest payments,'' said Ashok Shah of Old Mutual in London.

``We are reluctant to invest because they have promised a lot but when you look at what they have achieved, very little has been done.''

After losing their shirts last year -- when the IFC Korea index fell some 70 per cent in US dollar terms -- a rise of about 14.5 per cent so far this year has come largely on the back of a recovery in the won. But behind that recovery is a story of structural weakness and uncertainty, fund managerssay.

And with mountains of domestic borrowings and little liquidity, investors say they are not yet convinced that Korea will quickly take the painful steps needed -- asset sales and mass redundancies.

From Foreign and Colonial Emerging Markets, Ed Goodchild said he remained deeply underweight about Korea and has ``no plans in the foreseeable future to up our allocation.''

``There is a huge amount of restructuring needed in their financial system and there is going to be a huge requirement for capital to recapitalise the business sector,'' he said.

``We are going to have to see more proof of remedial action by the Koreans before we are going to commit money.''

The debt problem is truly enormous - corporate Korea is facing one half trillion US dollars of debt, equal to 164 per cent of nominal 1997 gross domestic product, according to a recent Ssangyong Securities report.

Repayment in 1998 will be at least $70 billion, or nearly half of total exports, the report said.

``We are underweight andwaiting for the pain to come through before we start to add to companies where we see restructuring,'' said James Hancocks, of Guinness Flight Hambro in London.

Recent events have left foreign fund managers worried that despite the liquidity crunch and a new government, capital is not being channelled in the right directions.

If Asia's crises can be said to have a root cause, or at least common denominator, it is the inefficient and sometimes corrupt allocation of capital and credit. In Indonesia this was ``crony capitalism,'' where projects tied to the family of former president Suharto were bankrolled to the tune of billions.

In Korea, the disease was ``chaebol capitalism,'' where conglomerates rabid to expand invested in new units with little regard to their profitability or prospects. Fund managers, pointing to the recent bail-out of the Dong Ah group, say that capital is still being allocated in Korea, though for different reasons.

Creditor banks of Dong Ah Construction extended more than $400million of emergency loans to the company in May.

``The government has put tremendous pressure on banks not to accelerate the closure of the companies,'' said Shah of Old Mutual.

``Dong Ah was bailed out by the government effectively forcing banks to relend money to it,'' he said, adding that the government was concerned that a bankruptcy would lead to politically untenable job losses. But in a credit crunch, loans to companies that would otherwise fail have serious negative side effects, fund managers say.

Hancocks said that loans to Dong Ah may have the effect of crowding out other, more viable corporations from the extremely limited pool of credit. And loans to failing firms are effectively subsidising cut-throat competition, according to Shah. ``These companies are selling products at any price. They are completely removing pricing power from more healthy firms,'' he said. ``It will mean more bankruptcies,'' he said. But looking beyond 1998, many western fund managers see a strong recovery forKorea.

The won, more than 50 per cent weaker against the dollar than a year ago, is now strongly competitive.