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Korean exports are down massively, but still better than expected and showing real signs of a bottom

South Korean customs data released last night show exports for April at an estimated $31 billion, a -19% year-over-year decline but still better than almost every observer expected.  Critically, this was the third sequential improvement on an absolute dollar basis.
(see charts and continued text below)

Roubini's Global Apocalypse, Not Anymore...  - kor1

On one hand, like the recent Japanese trade data, this could be brushed off as just another signal that the Chinese stimulus plan is now in motion and the wheels of commerce are starting to move for every part of the Asian supply chain. Significantly though, the weak won puts Korean exporters at an advantage over Japanese competitors (see chart below).

Roubini's Global Apocalypse, Not Anymore...  - kor2

Korean heavy industrials are in the global top tier and, as the Chinese Ox requires more heavy equipment, trucks, ships etc., they will be more than happy to oblige. Overlapping political considerations may cause Chinese tech buyers to favor products originating from the (in their view) prodigal Taiwanese, but when it comes to heavy metal it's hard to beat a cheap-won high-quality Korea.

The Korean economy has profound structural damage that will take years to sort out as their financial system rights itself. Also, the insane sibling state on their Northern border injects a large degree of event risk. Having said all that, if the currency situation remains relatively unchanged , it might be somewhat tempting long to pair against a Japanese short.

Andrew Barber
Director