How South Korean Exports Are Affected By China’s Slowing Economy | Before & After | Refinitiv
Welcome. This is before and after the twice weekly markets show from Refinitiv. In this episode's before section, we will discuss ThyssenKrupp's, upcoming earnings reports and the pending South Korea exports announcements as they try to avoid a 12th straight decline. The after segment looks at the stronger than expected U.S. retail sales reports and what the data tells us about that. T hyssenKrupp is having an existential crisis. The German multinational conglomerate has seen its stock price fall to 50 percent below the five year highs. Even after the Q3 recovery in global asset prices, the stock is down 13 percent year to date versus the German DAX index, which has gained 25 percent. The legendary company, a merger of Thyssen AG and Krupp, can trace its history through those companies back into the eighteen hundreds and today is divided into six hundred and seventy subsidiaries worldwide. With word that ThyssenKrupp has been shopping their 16 billion dollar a year elevated division, it's staggering that a company as storied as this has had no better survival plan than selling prized assets to cover cash losses and pensions. The unsustainable business model has even caused concern in the German government, as the proud national entity has had cash losses in 10 of the last 13 years. Even as, according to GDP data, Germany has avoided recession, ThyssenKrupp finds themselves squarely in the center of the manufacturing sector slowdown. Investors have to ask if they want to be long in a business that has few positive prospects and no discernible business plan other than selling off its only pieces of value to stave off the inevitable. If you are a trader in a rental position for weeks or months, you should consider these points. Even though the stock price is down 13 percent on the year, it has bounced 40 percent off its lows thanks to the DAX climbing the wall of worry on the fuel of the global equities liquidity frenzy. This should be classified as a higher risk pre earnings trade than usual because of the stretched decline over two years, down 64 percent and the recent bounce since August lows of up 40 percent. German manufacturing readings have been horrific and have yet to stop their downward acceleration. The most likely scenario is that the ThyssenKrupp earnings are going to reflect this and it should be a very serious wake up call for the DAX and for investors in Germany as a whole. This is the rare case that it may be the wisest course of action to play it safe and wait for the results to hit the tape. A big miss could potentially see a double digit single day decline. But the good news for those itching to short is that there should still be some meat on the bone to pick at, especially if you can ride out any end of year squeeze up from the DAX. A long DAX short ThyssenKrupp pair seems like the most solid play. The second before segment is about Korean export orders. With our Refinitiv data in hand, we will explore some scenarios should that number join the recent rebound in global manufacturing data points and help spur on Korean equities. Being Korea's largest trade partner, the slowdown in China has played havoc on the Korean economy. Growth in Korean export orders has been hovering around their 10 year lows of minus 20 percent levels, which have only been exceeded during the great financial crisis and the Korean equity market is 16 percent below its two year highs. Registering at minus nineteen point five percent, last month's Korean export orders was the 11th straight decline and truly demonstrates a drastic slowdown. The largest export sector of the Korean economy, semiconductors, was off by a staggering 29 percent last month, year on year. The stocks in the sector worldwide are reflecting optimism that we have seen the bottom of the cycle. Yet the Korean equities index is one of the weaker indices in the world and only up four point eight percent on the year and slightly down if currency adjusted in U.S. dollar terms. This country's equity market is ripe for bottom fishing on the rebound in global trade. Considering the very real issues China is facing with Hong Kong, there will be an appetite for Asia ex China investments and South Korea is well positioned to receive that flow. Although, the massive Saudi Aramco IPO may divert funds from across all of the emerging market space to fund that listing. Should the export data surprise much weaker, there is a good chance it's the semiconductor sector that is dragging it down. Consideration should be given to being long in the EWY, the South Korean ETF, versus a short in the EWT, the Taiwanese ETF, which is also extremely exposed to semiconductors. EWT is within striking distance of its yearly high and has crushed the EWY this year outperforming it by twenty two point three percent. Look for the spread between these two to revert to the mean. Happy holidays and may all the retail sales be upon you. In today's after segment, we find that October retail sales came in stronger than expected, landing at naught point three versus the expected nought point two gain. This is the start of the true retail season and Black Friday will dictate how strong a year end rally we get. But in the meantime, the gain came on the back of a big uptick in auto sales. Auto sales gained nought point five percent after last month's slump of minus one point three percent. Last episode, we discussed opportunity around Ford. As our Refinitiv chart shows, Ford opened up strong, up 1 percent on the announcement. You will want to see a continuation of buying on higher volume before you believe that this isn't being discounted as a one off number. We should also note another aspect in the overall number, internet sales. The reported number was a double digit gain, up 14 percent year on year, reflecting our anticipated performance even from old school retailers like Wal-Mart. In a previous episode we discussed Walmart scant room for error and maintaining the dedication to taking on Amazon in the one day fulfillment e-commerce arena and pointed out that they needed to maintain their 35 percent growth in that area. Walmart blew through that estimate and reported a massive 41 percent increase in online sales. This should allow Walmart to continue its stellar price performance, at least through to the end of the year. There you have it. A lot to look forward to and a good look back. That's before and after twice weekly from Refinitiv. Be sure to share, like, subscribe and click the bell for notifications. I'm Jamie McDonald. Thank you for watching.