Perfect Storm: And The World’s New Worst Performing Stock Market Is…

Congratulations are in order for South Korean stocks: The Kospi now has the distinction of being the world’s worst performing major equity benchmark.

The dubious honor comes courtesy of yet another steep slide logged Tuesday, when the gauge fell 1.5%, hot on the heels of Monday’s 2.6% drubbing. South Korean shares have fallen in nine of the last 10 sessions. This, folks, is pretty heinous:

The Kospi is on track for a third consecutive weekly decline, and a fifth in six.

The mounting losses are easy to explain.

South Korea is caught in a perfect storm. Generalized trade tensions have weighed on the export-reliant economy and, more recently, the worst diplomatic row between Seoul and Tokyo in decades added an unwelcome dash of idiosyncratic risk to the mix. Meanwhile, the ebb and flow of semi stocks (which undulate with the racing pulse of the trade war) has played havoc with local markets. Around two-thirds of the country’s semiconductor exports head to China. Semiconductor sales dove 30% in the first 20 days of July.

The Kospi’s recent plunge put South Korean shares’ YTD performance below that of Malaysian equities.

The BoK cut rates last month and slashed its economic forecasts in the process. The bank now sees the domestic economy growing 2.2% this year, from the 2.5% rate seen in April. Inflation is expected to rise 0.7%, compared to 1.1% previously.

Things got so bad for South Korean small-caps on Monday that the Kosdaq was halted for the first time in at least three years. The rout was so acute that South Korea’s Financial Services Commission had to warn shorts (basically) that authorities would respond “swiftly and boldly” to any undue market instability.

It goes without saying that the outlook isn’t great. Investors in the South Korea ETF haven’t had a truly “good” half since H2 2017, and although there’s still plenty of time left for things to turn around in the back half of this year, the vehicle is down a cumulative ~14% in July and August.

The good news is, thanks to Donald Trump, the nuclear-armed child despot next door isn’t launching missiles anymore.

Oh, wait…


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