Korea’s Kospi index has been a regional and global laggard over the past few weeks, sliding by 17% in the first half of August. It’s not hard to see why. Korea is widely deemed a “geared play on global growth”, says Lex in the FT. Exports account for almost half of GDP, more than in Japan or China.
Korea’s reliance on the developed world is dwindling: Europe, Japan and the US now jointly account for 28% of Korea’s exports, down from 40% seven years ago. China takes 25%. Domestic demand looks unlikely to compensate for a slide in exports, as it is hampered by a household debt load worth 146% of disposable income. That’s more than America’s 137%, says Christian Oliver in the FT.
What’s more, says Wayne Arnold on Breakingviews, Korea’s foreign debt-to-GDP ratio is one of the region’s highest: 40% of it matures within two years, and more than half of it stems from European banks. If they make losses at home, they could reduce lending abroad. Korea is thus highly exposed to global markets’ two key concerns: global growth and Europe. So while the market may now be cheaper than Ireland or Portugal, it remains “right in the firing line”.