Bullish KRW As Recovery Gathers Pace
(2 min read)
South Korea’s economy is finally picking up. The September PMI was the highest since January, exports have bounced, declines in retail sales are slowing and unemployment remains low. The IMF revised its projections for Korea in its latest WEO and now expects only a modest contraction of -1.9% this year, picking up to 2.9% in 2021. Recent won performance reflects this improving macro backdrop, with KRW Asia’s best-performing currency since September, strengthening 3.2% versus the USD.
Importantly for the won, the current account is also improving. August’s $6.6bn surplus was almost $2bn higher than the same month last year. And the 12-month rolling surplus is now moving higher again after a long period of decline. The 7.7% YoY gain in September exports was the fastest since 2018 and boosted by an 11.8% gain in semiconductor exports. Tech exports had underperformed in recent months, with the 5.4% average growth from May through August significantly below the 19.6% increase in Taiwan’s electronics exports.
Lower chip prices are one factor. A multi-year decline in DRAM prices has been a significant drag on Korea’s C/A surplus given semiconductors account for 20% of total exports (Samsung is the world’s largest memory chip maker). Chip prices rose again in September after a sharp fall at the start of the year, which bodes well for further strength in exports. Samsung’s smartphone sales may also benefit from US restrictions on Huawei. And as well as improved C/A dynamics, capital account trends have also turned more favourable. Equity inflows have picked up again, with one-month rolling inflows now back close to the August highs.
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