On Monday, Yasuo Fukuda resigned as prime minister of Japan, because of a deadlock in the political system.

Martin Hutchinson, who up to now has been bullish on Japan, says Fukuda’s resignation is bad news for Japan’s near-term economic prospects.

However, Martin says there’s another Asian market that’s well worth a look: Korea.

Martin says the iShares MSCI South Korea Index Fund (NYSE:EWY) is good value now at a multiple of 10.3.

This from Money Morning:

Japan’s public sector is likely to grow again, as it did in the 1990s, producing larger Japanese budget deficits, packing on more debt and stifling private sector development. Since Japan’s public debt is already so high, the chances are good that the country’s debt rating of AA (Standard & Poor’s) /Aa3 (Moody’s Investors Service (MCO) will be downgraded. That would increase borrowing costs for all Japanese companies and damage the economy badly.

For more than a year, I had been positive on the Japanese economy, even as the market declined. But it’s finally time for a shift in outlook:

• In the near term – until the political situation can be sorted out – it’s better to underweight Japan in our portfolios.
• Long-term, however, we still believe that Japan is superbly positioned to capitalize on its proximity to China; indeed, as we’ve noted, the two countries are quietly forming what may one day well be the most powerful trading alliance on the planet.

In the meantime, until it becomes clear that this China-Japan connection can pump up the Japanese economy, there’s another Asian market - one of the “Four Asian Tigers” - that’s clearly worth a look as an alternative.

And that market is Korea.

Korea’s Profit Promise

The Korean government recently improved with the election of president Lee Myung-bak and a pro-business party with a substantial majority. Korea’s economic growth is likely to accelerate, particularly if we have seen the worst of the commodity and energy bubble, since Korea is primarily an importer of commodities and energy goods.

The Korean stock market has been beaten down this year, dropping 20%, and currently trades at only ten times earnings. But this low valuation is undeserved, since the Korean economy is expected to grow at better than a 4% clip for both this year and next, according to the respected global-economics magazine The Economist.

Take a look, for example, the iShares MSCI South Korea Index Fund (NYSE:EWY), which tracks the Morgan Stanley Capital International Korea index. The ETF currently carries a P/E ratio of 10.3 and features a dividend yield - after expenses - of about 1.9%.

Source: As Japan’s Economic Sun Sets - Albeit Temporarily - Look to Korea as an Asian Profit Play