Mind the gap! ?? [K-conomics coming to you weekdays at 4pm KST]

Welcome to the inaugural edition of the K-conomics newsletter! I am beyond excited to share my insights and analysis on the region's socioeconomic landscape with you on a regular basis. The current plan is to drop an article every weekday after-hours; meaning 4pm KST. I've got at least 7 LinkedIn warriors holding me accountable on this, so you can rest assured that K-conomics will stay a daily newsletter. ??

In this first edition, we'll take a brooooad look at the state of the South Korean economy and some of the key factors shaping its performance. We'll also delve into some of the specific challenges and opportunities facing the country as it looks to maintain its position as a global economic powerhouse. And then we'll drop #trends that seemed to affect the market today, as well as local and regional #finance news that I find relevant. And we'll cap it off with a book recommendation for people interested in local consumer trends. If you're already familiar with the Korean economy and you don't need the quick refresher course, you can skip right to the good stuff!

But first, a quick overview: South Korea's been a standout performer in the global economy for quite some time now, with strong growth, low unemployment, and a highly sophisticated manufacturing sector (#semiconductors for the win).

However, like all economies lately, South Korea has its share of present challenges (and potential headwinds). One key issue every talking head has been raging about over the last few years - especially since China's terrifying #THAAD tantrum - has been reliance on exports. Amid what seems like slowing global growth and trade tensions, it's understandable that an export-dependent economy might seem risky to some. In addition, Korea's economy's going to have to withstand some pretty wild demographic challenges, i.e. the rapidly aging population and declining birthrate (0.75 !!!! as of Q2 2022), the effects of which we'll just have to wait on.

Despite these challenges, there's a number of strengths and opportunities that it can leverage to continue driving economic growth. For one, the aforementioned highly educated workforce, maintaining the country's edge in areas like #tech. In addition, the government has implemented a number of initiatives to support #innovation and entrepreneurship, including the establishment of various tech hubs and incubators. I might do an entire article explaining the difference between licenses like Inno-biz and Main-biz for any curious local business owners.

Now, let's delve into some of the trends and activity we've been seeing lately.

1. Powell widens the gap. ?? The #KOSPI, Korea's answer to the S&P 500, isn't doing so great. The stock market in Seoul tanked last Thursday as the Korean won plummeted against the dollar, and as of market close today things are NOT looking up (the index rn: ??). This was in response to the Fed's (U.S. Federal Reserve) announcement of plans for additional interest rate hikes in the coming year,?and warnings of an economic slowdown. Fed Chair, Jerome Powell essentially expressed that they won't be lowering rates until they see solid evidence that inflation is going down for good. Long story short, the Fed is going to continue to focus on controlling inflation and not so much their effect on the global economy, which is why the KOSDAQ & KOSPI freaked out. Almost everything went down, but things like utilities and aerospace did okay. Honestly though, some had expected this to all have been priced in already, as Powell hasn't given much sign of a pivot and the Korean market has steadily taken everything back since the optimistic rally at the end of November - but we were painfully wrong. This isn't all Powell's fault though (we still stan, sorry); and it's important to note that the BOK's new governor Chang Yong Lee has also raised rates this year in an attempt to fight inflation, and we saw a hike of 50 basis points between July and November.

2. Korean SME's are taking a beating. ?? Anyone else still traumatized from the Legoland Korea "financial disaster" this summer? Just me? Well, while the ripple effect everyone was waiting for wasn't as scary as we all expected (I probably just jinxed it), local small and medium sized manufacturing companies are still expecting to have a very bad year, as they struggle to keep up with rising interest and debt, despite achieving operating profits. Yonhap reported that a survey of 647 SMEs saw their operating profits up 4% (??), but the cost of their interest jumped 20% and their overall debt was up 10% (for Q3 2022). It's looking like high interest rates and a sluggish economy are contributing to fears of IMF-era mass bankruptcies, as well as the fact that many of these companies have had to take on more debt in order to get through the current crisis. The Korean Chamber of Commerce and Industry has noted that even companies that were previously doing okay with repaying their debts are currently struggling with liquidity. They're suggesting that it's time to review interest rate policies and come up with some support measures to help these companies out, since the salve of extended loan maturity and delayed repayment is coming to an end soon.

3. Bonds are back! ?? Finally, some (relatively) good news. South Korea's financial authorities have given banks the green light to start issuing bonds again! For context, authorities had asked banks to hold off on issuing bonds due to concerns about a potential liquidity crunch and rising yields in the bond market. Honestly though, glad to see bonds back, but no surprise here. This news was expected not just because of the policy changes that led to the local bond market being deemed stable enough to handle new issuances. But also because, well, there's around $1.76 billion (USD) worth of bonds maturing at the end of the year, and they'll need to issue new bonds to pay those off. Still, a win is a win ??. Starting with Shinhan and Woori there'll be a soft launch of sorts while the authorities continue to closely monitor the situation; and they've said they may adjust the timing and size of bond issuance as needed based on market conditions.

Glad I got to end K-conomics' first edition on a positive note! Now, here's the book recommendation I promised.

Trend Korea 2023 is out! I got to read this a month ago when my boss got me a copy just because. A quick highlight of the trends I found most interesting: Cherry-sumers (the increase in single person households among other factors, has given birth to the cherrysumer), Index Relationships (strategic friendships being driven by a rise in social media use) and Neverland Syndrome (this one should be self-explanatory and super relatable).

Be sure to check this out. See you tomorrow!

References:

https://www.yna.co.kr/view/AKR20221215007751071?section=search

https://www.yna.co.kr/view/AKR20221219046500003?section=industry/industrial-enterprise