South Korea has become the 4th South East Asian country to enter recession after declining for a second consecutive quarter (-3.3%). South Korea joins Japan, Thailand and Singapore as the pandemic continues to disrupt trade for countries reliant on export revenue.
Export-dependent equities, predominantly in the manufacturing sector have slumped. Posco one of the world’s top 5 steelmakers is down 22% since February. Whereas in Tech, hardwdare producer stocks rallied as businesses rush to digitalize, SK Hynix the world’s 2nd largest Chip maker reported a tripling of its operating profit. With activity slowly returning in most countries, a strong rebound in quarter 3 is expected.
South Korean manufacturer equities remain under-bought but skewed towards risk-on as some investors fear another spike in cases which will further disrupt global trade. The revenue of these companies is determined by consumer demand. Looking at the increasing activity in the economies of primary trade partners China and US gives an indication shares may rise. But the uncertainty regarding unemployment remains a deterrent for investors. American unemployment spiked to 14.7% in April from 4.4% pre-pandemic and has now reduced to 11.1%. The downward trend on unemployment supplements the risk-on sentiment witnessed in South Korean manufacturing stocks.