The brief implementation of martial law in South Korea has triggered political turmoil, causing unease among investors, and subsequently Asian stock markets have fallen.
After three consecutive trading days of gains, the Chinese stock market fell today, and global markets have entered a state of readiness.
1. Investors are beginning to digest recent developments, with a hint of unease permeating the hesitant trend—at one point during the day, there was a chance to recover losses, but in the final hour before the close, there was a sudden drop, revealing signs that the downward trend is not over.
· Internal factors: The timing of an important Chinese meeting has been set (reportedly starting next Tuesday), and investors are focusing on next year's GDP growth target, as well as any stimulus measures for consumption. Current market expectations are relatively low, making it easier to exceed those expectations.
· External factors: After the U.S. tightened export controls on chips to China, China has banned the export of key metals used in semiconductor manufacturing and other high-tech products to the U.S.
2. The yuan rebounded today, as the People’s Bank of China is actively curbing the depreciation of the yuan by restricting the midpoint rate—today's exchange rate midpoint unexpectedly strengthened to 7.1934 yuan, over 900 basis points stronger than the market. Currently, China sees no need to devalue the yuan to offset tariff risks, as both the intensity and timing of the tariffs are uncertain.
BNP Paribas issued a naive report suggesting that countries should not retaliate against U.S. tariffs. The report states that (not retaliating against the U.S.) means reducing internal barriers for Europe, including those between the UK and the EU, while increasing public and private investments, and for China, it means enhancing domestic demand.
3. The political turmoil in South Korea has not yet significantly affected the risk appetite in the Asia-Pacific market, but if the chaos continues, the impact may spill over. The market hopes that the deadlock can be resolved quickly and political stability restored; for now, uncertainty seems likely to persist for some time.
Concerns over U.S. tariffs and the unexpected rate cut by the Bank of Korea, combined with South Korea's 14 consecutive months of export slump, reflect a growing anxiety about trade tensions and weak U.S. demand, all of which have dimmed the appeal of South Korean assets.
However, some analysts are already preparing to buy South Korean assets, as the valuation gap between South Korean assets and those in other regions of the world has reached a 20-year high. If a crisis can be avoided, market sentiment towards South Korea could change rapidly. However, there may still be many variables, such as rating agencies possibly downgrading South Korea's sovereign credit rating.
4. The events that will ultimately decide the next move in the global market include the upcoming speech by Federal Reserve Chairman Powell later this week and the non-farm payroll data on Friday evening. Currently, traders' default scenario is to bet on a rate cut by the Fed in December; in other words, good news is unlikely to be too good, but bad news has a chance of being worse.
