The authors are economists from Shinhan Investment Corp. They can be contacted at [email protected] – Ed.
Korea and Taiwan continue to show strong export growth. Financial market performance, however, was noticeably weaker in Korea compared to Taiwan. The headline numbers from the two countries both look decent, but the results clearly differ when examined in detail. Korea’s exports of intermediate and capital goods have been hit by global supply chain disruptions, while Taiwanese exports as a whole have remained relatively strong. By category, cyclicals such as chemicals drove export gains for Korea, compared to structural growth categories such as semiconductors for Taiwan.
By region, Korea even recorded growth in exports to North America, Europe and Asia. Taiwan also saw strong exports to Asia, Europe and Central/South America, but saw significantly stronger export growth to the United States as trade relations strengthened between the two countries in a context of growing tensions with the G2.
Triggers needed to close the gap between GDP and stock market performance
Starting with trade, growing differences between Korea and Taiwan are also seen in economic and financial market performance. Widening gaps are clearly visible in GDP levels and stock indices. Taiwan’s GDP grew more than 10% from pre-pandemic levels, with strong value chain cooperation between SMEs and large enterprises helping to increase the overall competitiveness of the country’s manufacturing industry.
In 2021, price factors were the main driver of export growth for Korea compared to total volume for Taiwan. This in turn has cast doubt on the sustainability of Korean export growth. We believe that the easing of concerns will depend on: 1) the cyclical improvement in demand from emerging markets; and 2) structural increase in exports of new growth categories. Improving demand from emerging markets, which accounts for a large portion of Korea’s exports, will likely lead to a visible upward trend in total exports. The growth of new export categories, coupled with the continued increase in exports of cyclical stocks, should drive structural growth in overall exports going forward.