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Nov
2015
Deutsche Bank South Korea Newsletter
Brief update on the Korean economy and the financial sectors
Economic
/Political
Update
Korean Export Marks Largest Drop in 6 years and 2 months: Korea’s shipments for October
2015 marked the steepest decline in six years and two months. Among the nation’s 13 major export
items designated by the Ministry of Trade, Industry & Energy, all items, excluding mobile phones,
marked a negative growth. The ministry announced on November 1 that the nation’s exports
amounted to US$43.37 billion last month, down 15.8 percent from a year ago. This represented the
largest decline since August 2009 (-20.9%). Key factors behind the sharp year-to-year decline in
exports include the base effect of last year’s record-high October figure ($51.63 billion). Another
factor is the decline of 44.9 percent and 31.6 percent in shipments of oil and petrochemical products
due to regularly scheduled repairs at major refineries and petrochemical plants. By region, the
nation’s shipments to top-ten export destinations, excluding Vietnam, registered a negative year-onyear growth. Korea’s exports to Vietnam in which Samsung Electronics runs mobile phone plants rose
12.7 percent. The nation’s imports also fell 16.6 percent to $36.7 billion, with the trade balance
estimated at a $6.69-billion surplus. The nation’s trade balance remained profitable for 45 straight
months starting from February 2012. (Hankyung, 2 Nov 2015)
Korea’s 3Q Economic Growth rate reaches 1.2% : The third-quarter economic growth rate
surpassed the 1-percent level for the first time in six quarters, largely buoyed by a rise in domestic
consumer spending. According to preliminary GDP data put out by the Bank of Korea on October 23,
the economic growth rate for the third quarter was 1.2 percent from the previous quarter. This is
much higher than that for the second quarter (0.3%) when consumer spending contracted abruptly in
the wake of Middle East respiratory syndrome. The economic growth rate has been below the 1percent level for five consecutive quarters after recording 1.1 percent in the first quarter of 2014 and
0.5 percent in the next. The year-on-year third-quarter economic growth rate was 2.6 percent,
turning to the positive territory for the first time in six quarters. The year-on-year growth rate has
fallen for five straight quarters until the second quarter this year after clocking 3.9 percent in the first
quarter when the figure was 3.9 percent. During the quarter, private consumption increased 1.1
percent from the previous quarter. Investment in construction rose 4.5 percent from the previous
quarter, buoyed by the recent strength in the housing market. Meanwhile, exports were down 0.2
percent after logging a 0.3-percent increase in the second quarter. Economists commented that it will
be hard to expect an economic recovery any time soon despite the slight increase in domestic
consumer spending. That's because the recent consumer spending recovery was largely artificial in
nature due to the government's policy measure to encourage spending while there is no telling when
exports would recover. (Hankyung, 24 Oct 2015)
Consumer Spending recovers to pre-MERS level: The Ministry of Strategy and Finance said on
October 8 of the Korean economy, "Even though the consumer spending volume is steadily on the
rise and output and investment are rebounding, there are still uncertainties remaining including the
slowdown of the Chinese economy and the possible rate hike by the U.S. Fed." In its Green Book on
the latest economic trend published today, domestic consumption has recovered to the pre-MERS
level while output and investment are also getting out of the doldrums in the second quarter. As for
employment, the Green Book said, it is in fairly good condition, with overall prices remaining at low
levels due to the plunging oil prices. The sales revenue of department stores increased 14.1 percent
6 November 2015
1
Abbreviation index: BOK=Bank of Korea, CPI=consumer price index, DB=Deutsche Bank, FCY=Foreign currency, FDI=foreign direct
investment, FSC=Financial Supervisory Commission, FSS=Financial Supervisory Service, FTA=Free Trade Agreement, FX=Foreign exchange,
GDP=gross domestic product, GM Re= Deutsche Bank Global Markets Research, GNI=gross national income, IMF=International Monetary Fund,
KAMCO=Korea Asset Management Corporation, KCCI=Korea Chamber of Commerce & Industry, KDI= Korea Development Institute,
KOSPI=Korea Composite Stock Price Index, KOTRA=Korea Trade-Investment Promotion Agency, KRW=Korean Won, KRX=Korea Exchange,
KS=Korea Statistics (former National Statistics Office), KT=Korea Times, KTB=Korean Treasury Bonds, MAEIL=Maeil Business Newspaper &
mk.co.kr, MLTM=Ministry of Land, Transport & Maritime Affairs, MOCIE=Ministry of Commerce, Industry & Energy, MOCT=Ministry of Transport
& Construction, MOKE=Ministry of Knowledge Economy, MOL=Ministry of Labor, mom=month-on-month, MOSF=Ministry of Strategy &
Finance, nsa=not seasonally adjusted, NPL=Non-performing loan, NTS=National Tax Service, OECD=Organization for Economic Cooperation &
Development, PPI=producer price index qoq=quarter-on-quarter, sa=seasonally adjusted, saar=seasonally adjusted annual rate,
SERI=Samsung Economic Research Institute, SME=small-/ medium-sized enterprises, yoy=year-on-year, ytd=year to date.
in September from the same month a year ago while that for large discount stores rising 10.0 percent
during the same period. In August, the department store sales fell short of rising 1.2 percent while
that of discount stores shrinking 4.8 percent year on year. During the month of September, the sales
of domestically made cars increased 15.5 percent year on year. Thanks to the rebound in consumer
spending, the volume of credit card transactions also rose 14.8 percent in September, overtaking that
of last month's 10.3 percent. The ministry said that it will try to disburse the revised supplementary
budget earlier than scheduled while stepping up the effort to encourage consumer spending including
the Korea Grand Sale currently under way. (Hankyung, 8 Oct 2015)
Financial/
Industrial
Sector
Hanmi Pharm signs U$ 4.4 billion anti-diabetes drug deal with Sanofi: Hanmi Pharmaceutical
Co., South Korea’s leading drug maker, signed an approximately 5 trillion won ($4.4 billion) worth
contract with multinational pharmaceutical firm Sanofi S.A. to license out its self-developed
technology for new anti-diabetes drug, marking the largest deal sealed by a South Korean
pharmaceutical company. Hanmi climbed as much as 30 percent to an all-time high of 711,000 won in
Seoul trading today. On Thursday, Hanmi Pharmaceutical announced that under the deal with Sanofi,
France biggest company by market value, over its novel diabetes drug project, it will receive an
upfront payment of 400 million euros. It is also eligible for payments of up to 3.5 billion euros in
clinical development, regulatory approval and commercialization milestones, as well separate royalties
after the new drug is launched. The new technology, which has been developed by Hanmi
Pharmaceutical under the name of Quantum Project, increases the duration of action of biologics,
reducing the frequency of diabetes drug injections and the dose. This platform technology allows
diabetes patients to take insulin, efpeglenatide, or their combinations only once a week. Efpeglenatide
belongs to a newer class of medicines called GLP1-agnostics that are used to control blood sugar.
Ahead of the contract with Sanofi, in September, Hanmi Pharmaceutical presented nine research
results of its clinical trial of the Quantum Project at a conference hosted by the European Association
for the Study of Diabetes in Stockholm, Sweden. The company was acknowledged for its medical
technology and reconfirmed its goal to develop a new anti-diabetes drug in which patients can inject
once a month. The latest contract grants Sanofi global exclusive rights to the Quantum Project.
Commercial rights for the new drug in South Korea and China will be exclusively held by Hanmi
Pharmaceutical. (Maeil, 6 Nov 2015)
Volkswagen scandal cut its Korean sales in October: Volkswagen AG saw its Korean car sales in
October plunge to one-third of its September sales after the emission cheat scandal, according to the
Korea Automobile Importers & Distributors Association (KAIDA). The registered number of
Volkswagen vehicles in South Korea was tallied at 947 in October, nearly 2,000 units less than its
September sales of 2,901 units. The German automaker’s premium brand Audi also saw its sales
nosedive from 3,401 units in September to 2,482 in October. Overall October sales volume of
imported cars in South Korea reached 17,423 registered units, the lowest level since February when
total sales reached 16,759 units. Top selling cars in September were Volkswagen Tiguan 2.0 TDI BMT
and Audi A6 35 TDI ranking first and second, respectively, but in October, they were dethroned with
sales of 201 and 415 units, each. By brand, Mercedes-Benz sold cars the most in the country with
sales of 3,713 units, followed by BMW of 3,156 units, Audi of 2,482 units and Peugeot of 171. (Maeil, 5
Nov 2015)
30 Sep 2015 KOSPI 1,962.81p, KOSDAQ 678.48p
30 Oct 2015 KOSPI 2,029.47p, KOSDAQ 683.63p
Q
FX Rates
Interest
Rates
(Source: Reuters)
- As of 30 Sep 2015
- As of 30 Oct 2015
KRW/USD
1184.40
1140.16
Certificate of Deposit (CD) yield (91d)
Treasury Bond yield (5y)
Corp Bond yield (“AA-“ rated, 3y)
1.59% p.a. (30 Sep 15)
1.72% p.a. (30 Sep 15)
1.89% p.a. (30 Sep 15)
6 November 2015
KRW/100JPY
987.94
945.09
KRW/EUR
1323.73
1254.75
KRW/GBP
1791.70
1759.04
1.57% p.a. (30 Oct 15)
1.79% p.a. (30 Oct 15)
2.00% p.a. (30 Oct 15)
2
The House
View
14 Oct
2015
Financial markets continue to be dominated by speculation over the timing of Fed rate hikes and
concerns over the health of the global economy. Growth forecasts have been cut on the margin in
recent months, reflecting lower expectations for the second half of the year in the US and a materially
weaker outlook for Emerging Markets. The Fed’s focus on external risks in their decision not to hike in
September stoked these concerns.
Despite these revisions, we don’t share the widespread pessimism. Domestic demand fundamentals
remain solid in the US and Europe, and data in China are far from suggesting a sharp slowdown –
leaving the world’s three largest economies on reasonably sound footing. EM growth remains a worry,
but typical EM crises are unlikely given better external resilience (e.g., higher foreign reserves).
Risk assets have rallied in recent weeks as markets have pushed back the timing of the first Fed hike.
The interplay between markets and the Fed actually presents a challenge: better data raise the odds
of a Fed hike, tightening financial conditions and thus making a hike less likely. This circular interplay
is not new however, and has not prevented the central bank from raising rates in the past.
But the Fed first needs confirmation that the US economy remains on track and that downside risks to
China are limited – something we expect in the next few months. Only then can the Fed more credibly
signal that rate hikes are coming, leading the market to price these hikes and limiting the scope of the
likely initial adverse reaction. This is still possible by December, but the likelihood has diminished.
In the meantime, the Fed’s delay puts pressure on the ECB and BoJ to ease further. We now expect
an extension of ECB QE in coming months.
While a continuation of recent gains is possible, markets will remain volatile in the near-term as focus
narrows on US and China macro data especially. Further clarity on the macro backdrop and path of
monetary policy will be needed for the next leg up in risk assets.
(Please feel free to contact your DB representatives for the full version of the “the House View” or
other periodical reviews.)
Economic &
Financial
Indicators
Sources:
Asia Economics
Monthly
As of
5 Nov
2015
-Please note
that these
figures may
not match with
those mentioned
before due
to different
sources.-
6 November 2015
2014
2015F
2016FF
2017F
1411
27,981
3.3
1.8
2.8
1.3
1368
27,018
1336
26,287
1419
27,810
2.6
1.9
3.4
2.8
2.4
3.0
3.0
2.1
2.5
0.7
1.6
2.1
Nominal GDP
GDP per Capita
Real GDP Growth
Priv. consumption
Gov’t consumption
Inflation
USD bn
Merchandise Exports
USD bn
621.3
559.3
577.4
611.4
Merchandise imports
Trade Balance
Current Account
Gov’t debt
>Domestic
>External
Total external debt
USD bn
528.6
92.7
89.1
35.8
35.4
0.5
30.2
FX reserves
Unemployment
FDI (net)
FX Rate (eop)
USD bn
430.8
129.1
121.3
38.7
38.4
0.3
31.1
369.2
3.7
465.9
111.5
97.6
40.5
40.4
0.1
31.1
362.1
3.7
494.3
117.1
102.6
40.7
40.7
0.0
30.0
379.5
3.7
-20.0
1175
-18.0
1240
-20.0
1200
USD
% yoy
% yoy
% yoy
% yoy
ann avg
USD bn
USD bn
% of GDP
% of GDP
% of GDP
% of GDP
%
USD bn
KRW/USD
363.6
3.6
-20.7
1099
3
Financial market
BoK base rate
91-day CD
10-year yield (%)
KRW/USD
Moody’s: Aa3
Current
4Q 15
1Q 16
3Q 16
1.50
1.57
1.50
1.57
1.50
1.57
1.50
1.63
2.17
1133
2.20
1175
2.40
1200
2.60
1235
S&P:AA-
Fitch: AA-
Editor: Sungbai Hwang/ Deutsche Bank AG, Seoul Branch / E-Mail: [email protected]
Disclaimer:
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The
information herein is believed by Deutsche Bank to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank
makes no representation as to the accuracy or completeness of such information.
Opinions, estimates and projections in this report constitute the current judgement of the cited sources and/or the author as of the date of this
report. They do not necessarily reflect the opinions of Deutsche Bank or any of its subsidiaries and affiliates and are subject to change without
notice. Deutsche Bank nor its subsidiaries/affiliates has no obligation to update, modify or amend this report or to otherwise notify a reader
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from the use of this document or its contents.
6 November 2015
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