Since the beginning of this year, Asian stock markets have shown mixed performance against the backdrop of a strong dollar.
Among them, some achieved a bull market in their domestic currency at the expense of currency depreciation, while others sacrificed part of their stock market gains for a relatively stable exchange rate.
Only South Korea is an exception:
Measured in won, South Korea's composite index KSOPI has fallen by 10.0% this year. Considering the depreciation of the won, the dollar-denominated KSOPI has fallen by 18.9%, both being the weakest in Asia.
Source: Wall Street Journal
Most of the declines occurred in the second half of the year. The 24H1KSOPI once rose nearly 20%, but the gains were wiped out in the second half.
What has happened in South Korea in the second half of the year?
Foreign capital is fleeing, and residents are clustering to trade cryptocurrencies.
From the perspective of capital flow, since the second half of this year, only institutions in South Korea have maintained a net buying scale in the stock market, while the residential sector has been continuously reducing its purchases.
Source: Wind
Foreign capital is even more pessimistic. In November this year, foreign capital net sold South Korean stocks amounting to 4.15 trillion won, marking four consecutive months of net selling. From early December, within two weeks, they net sold another 2.4 trillion won.
Source: Wind
A large portion of the money that South Korean residents have withdrawn from the stock market has gone into 'trading cryptocurrencies'.
Data from the Bank of Korea (BOK) shows that as of November, the number of domestic cryptocurrency investors in South Korea has reached 15.59 million, an increase of 610,000 from the previous month. Currently, among the 51 million South Korean citizens, 30% are trading cryptocurrencies.
The five major cryptocurrency exchanges in South Korea—UPbit, Bithumb, Coinone, Korbit, and GOPAX—saw their average daily trading volume soar from 3.4 trillion won in October to 14.9 trillion won in November, growing more than fourfold.
Koreans have always been enthusiastic about investing in cryptocurrencies.
During the first wave of the cryptocurrency bull market in 2017, about 5% of the population participated; in the second round of the bull market in 2021, 10% participated; now this proportion has expanded to 30%.
Historically, South Korea's stock index and Bitcoin prices have shown a positive correlation until October of this year, when this positive correlation was completely broken.
Source: PaNews
So, is the decline in the South Korean stock market blamed on Bitcoin?
Is the export really strong?
In 2023, South Korea's export volume accounted for as much as 40% of GDP. As an export-oriented economy, exports are the barometer of South Korea's economy.
Recent exports from South Korea seem to be showing signs of recovery.
The export data released by the Korea International Trade Association in November shows that the export amount in November grew by 1.4% year-on-year, maintaining an increasing trend for 14 consecutive months, but the trend has slowed down.
The export amount data released by South Korean customs for the first 10 days and 20 days of December respectively grew by 12.4% and 6.8% year-on-year, indicating that South Korea's exports in December should not be weak.
Source: Wind
However, behind this phenomenon, it is more likely to be a rush caused by concerns over Trump's tariffs.
Based on export fundamentals, South Korea's major export industries, including semiconductors, automobiles, and chemicals, are facing unfavorable prospects.
Source: South Korea's export structure in 2022
First, there is the weakness in semiconductors.
South Korea's domestic semiconductor giants Samsung Electronics and SK Hynix focus primarily on storage chips, which only account for about 30% of the entire semiconductor market. Compared to Taiwan, which has a complete supply chain including chip manufacturing, packaging, and testing, South Korea's presence is weak.
Data from Trend Force shows that in the second quarter of this year, TSMC's market share in the global foundry market was 62%, while Samsung Electronics was only 11%, widening the gap from 36.5% in 2020Q3 to 51% now.
Insufficient policy support is the main reason. South Korea lacks government subsidies similar to those in the United States, mainland China, and Taiwan, making it difficult to promote domestic chip production.
Key materials, components, and equipment for South Korea's semiconductor industry are also highly dependent on overseas sources. Data from the Korea Customs Service shows that more than half of the 13 sub-industries in semiconductor equipment have long-term trade deficits.
Source: South Korean Customs Service
Especially as the Yoon Suk-yeol government chose to hard decouple from the Chinese market, leading to a cliff-like drop in South Korea's semiconductor industry, which is highly dependent on the Chinese market. In 2023, the share of chips shipped by South Korean companies in China's chip imports has fallen to 6.3%, previously remaining above 10%.
Secondly, the automotive manufacturing industry is also clearly at a disadvantage in competition.
In 2023, global sales of Korean cars exceeded 8 million units, growing by more than 7% year-on-year, but their market share for new energy vehicles was only 9.3%.
China is currently the largest and fastest-growing new energy vehicle market in the world. In 2023, China's total car sales reached 30.09 million units, with a market share for new energy vehicles as high as 31.6%. The scale of China's automotive industry is nearly four times that of South Korea, with the market share for new energy vehicles being more than four times greater.
Source: Automotive Sales volume, 2024
Compared to German, American, and Japanese car manufacturers who proactively launch long-wheelbase and customized models based on the characteristics of Chinese consumers, Korean car manufacturers are slow to act and lack research and development efforts, compounded by the transformation difficulties in new energy, leaving Korean cars in a difficult situation in the Chinese market.
Source: Wall Street Journal
Finally, the export of petroleum products (refining industry) is also facing certain downward pressure.
In November this year, South Korea's largest refiner, SK Energy, announced its third-quarter performance:
In the 7-9 months of this year, the refining business recorded an operating loss of 616.6 billion won (450.2 million USD), the largest loss since the fourth quarter of 2022.
The company stated that
'We are in an unfavorable overall economic environment, crude oil prices are falling, and the overall refining product market is being squeezed…
Will continue to maintain the minimum operating rate of crude oil distillation units (CDUs) to prevent negative profit margins…'
Data from the London Stock Exchange shows that from June to August this year, Asian refining profit margins fell to their lowest since the third quarter of 2022.
Now, under the backdrop of a large increase in production prospects and potential, along with gradually disappearing demand, the market is bearish on oil prices in the long term, which constrains the production and export outlook of refiners.
The latest business outlook survey released by the Korea Enterprise Federation for 2025 shows that
Due to widespread concerns about export conditions, 65.7% of surveyed companies reported that they have already developed their business plans for next year, among which 49.7% of companies are adopting a 'tight management' policy, the highest level since the 2019 survey.
The Bank of Korea has stated that
'In 2025, an additional interest rate cut will be made to alleviate the downward pressure on the economy.'
Facing the headwinds of exchange rates, the Bank of Korea's resolute actions further highlight the weakness of its economy.
Political turmoil is not over
The recent fermentation of the emergency declaration incident by the South Korean president has further exacerbated the already weak fundamentals in South Korea.
On November 29, the South Korean National Assembly's Budget and Settlement Committee forcibly passed a budget cut proposal in the absence of ruling party members, completely cutting the special activity funds for the President's Office, the Prosecutor's Office, the Board of Audit and Inspection, and the police, while also significantly reducing the government's emergency reserve funds, totaling a cut of 4.1 trillion won, which means that the Yoon Suk-yeol government will come to a standstill next year due to lack of funds.
On December 3, South Korean President Yoon Suk-yeol declared a state of emergency, escalating the conflict between the government and the ruling party.
The conflict between the government and the ruling party is essentially a budget battle, as South Korea has faced severe fiscal pressure over the past two years.
The Yoon Suk-yeol government enacted tax cuts for the wealthy in 2023, leading to the largest fiscal revenue decline in South Korea's history. The Ministry of Economy and Finance's settlement report shows that South Korea's total tax revenue in 2023 was 497 trillion won, a decrease of 77 trillion won compared to the previous year.
Yoon Suk-yeol's actions are indeed 'robbing the country to enrich the wealthy'.
Currently, South Korea's fiscal deficit remains significant, reaching 52.89 trillion won in September this year, accounting for 2% of the nominal GDP in 2023.
Source: Wind
To address the fiscal crisis, the Yoon government even cut this year's research budget in Korea by 15%, marking the first such decision by the South Korean government since 1991.
On December 15, the South Korean National Assembly officially passed the impeachment motion against President Yoon Suk-yeol. On the 16th, the leader of the ruling party, Han Dong-hoon, announced his resignation from the party leadership.
……
Even if the impeachment case makes Yoon Suk-yeol's defeat inevitable, the future of South Korea's political landscape is even more confusing, which may further exacerbate foreign capital's bearish sentiment.
With both domestic and foreign capital being pessimistic, where will the South Korean stock market head next year?
This article is authorized for reprint from: (PaNews)
Original Author: Wall Street Journal
'South Korean stocks have plunged 18.9% this year! Is it due to Bitcoin's collapse? Let's see how much Koreans love to trade cryptocurrencies.' This article was first published on 'Crypto City'.
