(Bloomberg) -- Most Asian stocks have had some kind of revival after the U.S. and China reached a trade truce at the G-20 meeting last month. But for South Korea, it keeps getting worse.
The negative superlatives are piling up for the benchmark Kospi index: It’s the worst-performing market in the region today and this month. It’s the second biggest loser for the year. It also briefly erased it’s year-to-date gains in May.
And there doesn’t seem to be any relief in sight.
What started off as a trade war between two of the world’s largest economies that roiled the benchmark Kospi index and chip stocks has now morphed into a multi-front blitz that threatens to upend any kind of market rally the key gauge had.
The benchmark Kospi Index fell as much as 1.4% Wednesday, inching closer to erasing this year’s gain. That’s a huge contrast to other countries in North Asia: China is still up about 18%, while Japan -- even as a developed-market laggard -- has gained about 5%.
There’s a plethora of reasons blame for the state of Korea’s stock market. Global trade tensions come first to mind since it’s an export-driven economy. For Cho Byung-hyun, a strategist at Yuanta Securities Korea, it was primarily Trump’s comment on trade war with China put pressure on Korean shares Wednesday.
The other trade war -- Korea’s spat with Japan -- has made traders increasingly jittery. A prolonged dispute will only hurt Samsung Electronics Co. and SK Hynix Inc. (stocks that make up almost a quarter of the benchmark).
The U.S.-China trade war has hit South Korea’s exports hard, adding more pressure on the Bank of Korea to cut interest rates in order to support the economy. More than half of economists surveyed by Bloomberg expect the central bank to stand pat at Thursday’s policy meeting, but perhaps, a cut is just a matter of time.
Bank of America Merrill Lynch expects no rate change this Thursday, but the firm is forecasting a cut in August, economists led by Kathleen Oh wrote in note. If the spat with Japan is prolonged, two rates cuts by the Bank of Korea this year are expected, Hana Financial Investment says in a Wednesday note.
Some are still bullish. Foreigners are buying with net purchases of more than $5 billion in Korean stocks this year, according to data compiled by Bloomberg. And with the stock market rout, some say at least they are cheap. The Kospi is trading at about 11 times of forward price-to-earnings and 0.8 times price-to-book, both below where the MSCI Asia Pacific Index stands.
Everything hinges on how both trade feuds pan out. And if they escalate, South Korea’s stock market isn’t far from becoming the worst in Asia this year.
Stock-Market Summary
- MSCI Asia Pacific Index ex-Japan down 0.3%
- MSCI Asia Pacific Index down 0.2%
- Japan’s Topix index little changed; Nikkei 225 down 0.4%
- Hong Kong’s Hang Seng Index down 0.3%; Hang Seng China Enterprises down 0.4%; Shanghai Composite little changed; CSI 300 up 0.1%
- Taiwan’s Taiex index down 0.6%
- South Korea’s Kospi index down 0.9%; Kospi 200 down 0.8%
- Australia’s S&P/ASX 200 up 0.5%; New Zealand’s S&P/NZX 50 little changed
- India’s S&P BSE Sensex Index little changed; NSE Nifty 50 little changed
- Singapore’s Straits Times Index little changed; Malaysia’s KLCI down 0.4%; Philippine Stock Exchange Index little changed; Jakarta Composite down 0.2%; Thailand’s SET little changed; Vietnam’s VN Index little changed
- S&P 500 e-mini futures little changed after index closed down 0.3% in last session
©2019 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR