Supply chain disruptions, inflation woes weigh on domestic markets
By Anna J. Park
While U.S. stock markets have been continuing to renew record highs lately, markets here have been fluctuating severely recently, logging a fall of around 10 percent from three months ago. The level of “decoupling” between the two countries' stock markets has reached its widest since 2011, when comparing their respective index levels.
The S&P 500, Dow and Nasdaq indices have all been rewriting all-time highs this month, thanks to strong corporate performances as well as solid employment figures. The passage of a $1 trillion infrastructure bill also contributed to their bullish moves.
Yet, Korea's main benchmark KOSPI has been trapped in a boxed range around the 3,000-point level for months. Since the index hit its all-time high of 3,305 in early July, the index has fallen more than 10 percent, sliding back to 2,960 at the close trading Nov. 8, while edging up to 2,968.80, Friday.
This year alone, the S&P 500 has risen more than 27 percent from 3,700 points to 4,701 early this week; while the KOSPI increased just 3.3 percent over the same period.
Market watchers say the Korean economy's higher susceptibility to global supply chain disruptions as well as inflation worries caused by increases in raw material prices are part of the cause of the deepening decoupling.
“One of key reasons behind the decoupling is supply chain bottlenecks. Emerging economies' industrial structures, including that of Korea, have a huge dependency on external markets, which makes the country's economy more susceptible to prolonged global supply chain disruptions,” said Lee Kyoung-min, a strategist at Daishin Securities. “Exacerbated concerns over global supply chains due to power shortages in China are one of the reasons for Korean stock markets faltering.”
Another analyst also shared the view that the country's export-driven industrial structure makes the local stock markets more vulnerable to external factors, such as “China risks.”
“Compared to the U.S. where the services sector makes up a greater portion of the economy, Korea's heavier reliance on manufacturing makes it more susceptible to concerns over any slowdown in the Chinese economy,” explained Shin Seung-jin, an analyst at Samsung Securities.
Businesses related to the cyclical, IT and automotive sectors ― which are all highly affected by global supply chain issues ― make up 58.9 percent of KOSPI-listed companies, while it only accounts for about 28 percent of firms listed on the S&P 500.
In addition, relatively weaker corporate earnings are also a reason for decoupling, according to other market watchers.
“One of the reasons why the U.S. and Korean stock markets continue to decouple is that the U.S. is enjoying a relative advantage in growth during the third-quarter earnings season. In the end, what is key in resolving the decoupling is a recovery of earnings in our emerging market,” said Han Ji-young, an analyst at Kiwoom Securities.
Regarding how long the decoupling will continue, analysts have divergent views. Some expect the phenomenon will be ameliorated by the country's favorable export figures in October; but others believed the local stock markets are unlikely to see any growth momentum until the global supply disruptions are settled.
Due to the deepened decoupling, the average amount of trading by retail investors on the KOSPI has fallen by 20 percent, compared to previous months, as many are opting to invest in U.S. markets instead.
According to data compiled by the Korea Securities Depository, Korean nationals' ownership of overseas stocks reached an all-time high in the third quarter, at around 106 trillion won ($89.7 billion), and over 63 percent of these are U.S. shares.