What is wrong with this world? We are being led to believe that economies are crumbling. The health crisis is by far not eradicated, with pockets of new infections plaguing a number of countries again. Geopolitics is certainly not in our favour these days and won’t be for some time to come. America seems to be going up in flames over ethnic and social ruptures. And despite all this, the stock market has been V-shaping its way back up close to pre-corona highs.
What are we not seeing here? To be sure, central banks are acting in unprecedented ways, and we have been taught never to fight the Fed. A tsunami of almost 3 trillion dollars of excess liquidity added to the system in just 11 weeks has been doing its dues and propelled all asset prices back up, including equities. So, the stock market may simply be a hologram of reality, but it is what it is, and underweight investors are consistently being squeezed back into the action.
Or maybe the medium-term impact of the health crisis isn’t so bad after all? Opinions and moods move in waves, and we remember that markets took a while into March to start realising what a government-induced shutdown of an economy even means. Since then, everyone has been floored and bracing for the macro numbers to catch up and confirm the perceived armageddon scenario. And yes, if we look as far as GDP estimates, retail and labour numbers, it is indeed bad.
One of the signposts this space traditionally looks at to take the temperature of global economic sentiment is South Korean export numbers. The MOTIE ministry is typically the first to release external monthly trade data, and Korean exports for May came out to have declined by -23.7% year-on-year, to a total of 34.9 billion dollars. It looks like a horrible move, and it is the second monthly pullback in the mid-20s percent after an even slightly worse April.
Export declines of this magnitude we have had only during the recession post the tech bubble burst in 2001 and obviously on the eve of the financial crisis in 2009. However, considering absolute volumes those declines are being put in perspective, and South Korea still represents itself as a stronghold of a real economy, all things reflected on. The 35 billion export volume for May is still way above the lowest levels of around 10 billion during the 2001 recession and 20 billion during the financial crisis.
Imports dropped by a little less, by -21.1% to 34.4 billion dollars, which shrank the trade surplus somewhat. The key message here is that monthly exports have suffered from an inevitable dent, but the longer-term trend seems to absolutely be intact. South Korea is probably one of the countries that will overcome the crisis in relatively decent shape, not least owed to the fact that its primary trading partners are quickly re-emerging China and other Asian nations.
For the rest of the world, this is good news too. Unless supply chains and trade flows are being disrupted by excessive tariff policies, Korea’s early numbers should be seen with a pinch of hope and optimism. No wonder stock markets were up again overnight, stubbornly.
