South Korea's Chip Exports Headed for Rebound as Trade War Eases
Comment of the Day

January 13 2020

Commentary by Eoin Treacy

South Korea's Chip Exports Headed for Rebound as Trade War Eases

This article by Sam Kim for Bloomberg may be of interest to subscribers. Here is a section:

Semiconductor shipments, South Korea’s biggest source of income, rose 12% in the first 10 days of January from a year earlier, data from the Customs Service showed Monday. That’s the first time the preliminary figure posted growth since October 2018.

While the expansion benefits from a base effect of poor performance last year, it suggests global tech demand is improving after being battered by the U.S.-China trade war. The two countries entering a phase-one trade deal later this week should further support demand.

“It’s definitely a positive signal,” said Lim Hye-youn, an economist at KTB Investment & Securities, referring to the chip shipment in South Korea’s preliminary trade data. “But it’s still difficult to see the growth big enough to be leading Korea’s strong economic recovery. The base effect played a large role.”

Eoin Treacy's view

The global semiconductor sector is a lead indicator for corporate spending and tends to suffer when expectations for future economic potential are weak. All we hear right now is about the negative expectations for future growth among CEOs. If that were the full story then chips sales would not be turning higher.

South Korea is the world’s 11th largest economy and therefore is not usually considered when people look at periods of synchronised growth. Considering how globally oriented South Korea is, it is often a lead indicator for the global economy. The country’s negative growth was a sign the period of synchronised global growth, that characterized 2017 was unlikely to be repeated in 2018.  The question investors should be asking is whether the return to performance is a sign global economic growth is going to surprise on the upside in 2020.

Samsung Electronics broke out to new highs in local currency terms last week and the broader Kospi Index has clear broken an almost two-year downtrend.

The Philadelphia Semiconductors Index broke out to new highs in October. Over the course of the last six months it has posted four mini-consolidations in the order of 100 points. Therefore, a reaction of more than that would be required to signal mean reversion is underway.  

Back to top

You need to be logged in to comment.

New members registration