This country was once one of the Four Asian Tigers, with a relatively small population and area, but its economy was rapidly developing. However, it now faces the risks of capital flight, stock market decline, and currency collapse. In the past, the export sector, which has always been relied upon and a source of pride for the economy, has now experienced a significant drop, with export orders suddenly disappearing. The most puzzling thing is that, despite facing the risk of being harvested by the US dollar once again, it still firmly stands on the side of the United States. What's going on with South Korea?
Last weekend, the South Korean regulatory authorities suddenly announced a major move, stopping all short selling of South Korean stocks. This is a major benefit for ordinary investors, and the significant rise in the South Korean Composite Index on Monday this week also confirmed this point. However, unexpectedly, in the following four trading days, the South Korean stock market fell again, almost erasing the rise on Monday.
In fact, the problem with the South Korean stock market is not just this week, as it has already experienced a significant decline before. In mid-2021, the South Korean Composite Index once reached a high of 3300 points, but it once fell to a low of 2100 points. Now, there is a slight rebound, but it is only 2400 points, falling by 900 points from the highest point.As the Federal Reserve continues to tighten its monetary policy, foreign capital is also continuously flowing out of the South Korean market. Over the past three months, foreign institutions have been selling South Korean stocks consecutively, with increasing intensity. In August, foreign capital outflow from the South Korean stock market was $910 million, which increased to $1.33 billion in September, and almost doubled to $2.22 billion in October. In just these three months, foreign capital outflow from the South Korean stock market reached $4.46 billion, which, calculated at the current exchange rate, is equivalent to 58.7 trillion won withdrawing from the South Korean market. At the same time, foreign capital is also selling South Korean bonds, selling $680 million worth of South Korean bonds in the past two months, which is equivalent to nearly 9 trillion won flowing out of the South Korean bond market. The continuous selling and withdrawal of foreign capital is related to the continuous depreciation of the won, and the main reason for the collapse of the South Korean exchange rate is the continuous interest rate hikes by the US dollar. Since the US dollar's interest rate hikes, the US dollar index has been rising continuously, and the won has been depreciating ever since. Recently, the US dollar index has slightly retreated, but the won still failed to recover, and currently 1 won is exchanged for 0.008 US dollars. However, the most strange thing is that under normal circumstances, the depreciation of the local currency is beneficial to exports, but this has not been reflected in South Korea's trade. In the first three quarters of this year, South Korea's exports decreased by 11.5% year-on-year, and orders suddenly disappeared. Of course, this is still related to the United States. Due to the United States' monetary tightening policy, Europe had to follow suit, further leading to a downturn in demand in European and American countries.Many countries in Asia have traditionally relied on Europe and the United States as their main export markets, but they are now facing significant setbacks. However, South Korea's situation is particularly severe, with a greater decline than that of India, Vietnam, and Japan.
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Another equally puzzling point is that, despite having been repeatedly harvested by the US dollar in the past, South Korea is once again facing the prospect of being harvested, yet it remains very firm in its alignment with the United States.
In the past, by siding with the United States, South Korea does not seem to have gained many benefits. This time, it is also difficult for South Korea to avoid being harvested by the US dollar.