South Korea August Exports Flash Global Trade Warning (Investor's Business Daily)

September 1, 2015


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Markets reacted to a swell of manufacturing data out of China and Europe on Tuesday, while official export numbers out of South Korea flashed an early warning that China’s woes were spreading.

Korea’s exports slipped 14.7%, year over year, in August. The country’s exports have now declined for eight straight months, but the 14.7% decline was the trend’s biggest, and it was the largest contraction in exports since August 2009. Most economists had expected less than a 6% slip, Bloomberg reported.

South Korea’s benchmark Kospi index slipped 1.4% on Tuesday, stemming a five-session advance and leaving the index effectively flat in a roller-coaster year. The Kospi had climbed 13% through April, then dived 16% through August 24.

In the past week, even though South Korea edged into increasingly tense relations with its northern neighbor, its market acted as something of a safe haven as other Asian markets were battered, according to the Sydney Morning Herald.

South Korea’s economy is the world’s 13th largest — a third the size of No. 3 Japan, as measured by dollar-denominated GDP.

Exports are half of its GDP. China receives around 25% of those exports, making it South Korea’s largest trade partner.

Korea is a key supplier of raw materials and electronic components to foreign manufacturers.

This position gives its data, generally reported before other countries’ data, a sort of early warning role in the global trade picture.

Korea’s exports to China declined 8.8% in August vs. year-earlier levels.

Export trade to the eurozone fell nearly 21% for the month.

Petroleum and petrochemical products were key weak spots, declining 41% and 26%, respectively. Weakening oil prices accounted for part of those slips.

But South Korea has struggled vs. export competitor Japan, the Economist reports, as a devaluing yen has given Tokyo the price advantage. Last month’s move by China’s central bank to allow the yuan to drift in a wider band vs. the dollar, leading to a rapid devaluation, also works against Chinese buying power for South Korean goods.

A 15% decline in imports into South Korea in July accelerated to 18% in August.

South Korean companies trading on U.S. markets generally outpaced Tuesday’s losses on the Kospi. KB Financial (NYSE: KB) was about 2% lower in afternoon trade.

Telecom service provider KT (NYSE: KT) fell almost 3%.

Flat-panel leader LG Display (NYSE: LPL) slipped 4%. Heavyweight steel producer Posco (NYSE: PKX) also slid 4%.

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