Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why South Korea Is Surging While China Stocks Sink in June 2026
Transcript
- Lucas: Let's talk about the biggest divergence in emerging markets this week. South Korea's EWY ETF is up nearly 14 percent in five days. Meanwhile, China's FXI is barely positive, and Chinese ADRs like Alibaba and Baidu are down 4 to 6 percent. Luna: That is a striking gap. What's driving Korea's surge? Lucas: A few things. First, there's a proposed iran us deal that would reopen the Strait of Hormuz and lift oil sanctions. That's a huge positive for Korea — it's the world's fifth-largest crude importer, and lower oil prices directly improve its trade balance. Korea's export data has also been improving, led by semiconductors. Luna: And China? The trade data we have shows exports are still up year-over-year, but imports are growing faster. Lucas: Right. The US trade deficit narrowed slightly in April to about 55.9 billion dollars, but the trade-weighted dollar index hit 120.1 in early June. A stronger dollar is a headwind for China, especially with the yuan holding around 6.77 per dollar. China's economy is still fighting deflationary pressures, and the property sector hasn't turned around. Luna: So Korea is benefiting from a specific catalyst — the Iran deal — plus a structural advantage in semiconductors. China is stuck with macro headwinds and no clear catalyst. Lucas: Exactly. And if you look at the flows, money is rotating out of China into Korea and other markets like Thailand, which is up 4.5 percent this week. EEM, the broad emerging market ETF, is up 4.5 percent as well. But it's Korea stealing the show. Luna: Is this a one-week blip or something more structural? Lucas: I think it's partly structural. Korea's semiconductor cycle is recovering — memory chip prices have bottomed and are starting to rise. The Iran deal, if it goes through, would be a sustained tailwind. China, on the other hand, is dealing with overcapacity in manufacturing and a property market that's still weighing on consumer confidence. Luna: But China's exports are still growing. The data shows exports of goods and services hit 3.5 trillion dollars in the first quarter, up from 3.35 trillion a year ago. Lucas: They are, but the composition matters. A lot of that export growth is in low-margin goods, and Chinese companies are cutting prices to move inventory. That's deflationary for the world, but it also squeezes their own profit margins. Meanwhile, Korea's export growth is in high-value chips and electronics. Luna: So the market is rewarding Korea's earnings quality over China's volume story. Lucas: Precisely. And look at the currency angle. The Korean won has been relatively stable, while the yuan is under pressure. A weaker yuan helps exports but hurts investor confidence. Korea's central bank has also been more hawkish, which supports the won. Luna: One concern: Korea's export machine is heavily tied to global demand. If the US economy slows, that could hit Korea hard. Lucas: That's a real risk. But the market is looking at the next six to twelve months, and the signs are positive. The Iran deal could lower energy costs for Korea by tens of billions of dollars annually. That's a direct boost to corporate earnings and consumer spending. Luna: What about the broader emerging market picture? EEM is up, but the dispersion is huge. Lucas: Huge. Brazil's EWZ is up 2.4 percent, India's INDA is up just 1 percent. Mexico's EWW is up 3 percent. But China is basically flat, and Chinese ADRs are getting hammered. Alibaba down 6 percent, JD down nearly 3, Baidu down 4.6. That's a clear signal that investors are reducing China exposure. Luna: And yet, the headline about ChatGPT hitting a billion monthly app users suggests AI demand is still booming. That should benefit Chinese tech too, right? Lucas: You'd think so, but the market isn't buying it. Chinese tech companies face regulatory overhang and geopolitical risk. The AI boom is lifting NVIDIA and US tech, but Chinese equivalents like Baidu haven't been able to capitalize in the same way. Baidu's stock is down 4.6 percent this week. Luna: So the divergence between Korea and China is a microcosm of a larger shift — capital flowing to markets with clearer catalysts and fewer political risks. Lucas: Exactly. And it's worth noting that Korea's market is also benefiting from the SpaceX IPO narrative. The IPO is the biggest ever, and it's drawing attention to tech and innovation globally. Korea's semiconductor and electronics sectors are seen as key enablers of that space economy. Luna: That's a fascinating link. SpaceX needs advanced chips, Korea makes them. Lucas: Right. And the proposed Iran deal also has implications for the Strait of Hormuz, which is critical for global oil shipments. If the deal goes through, it reduces geopolitical risk premium for oil importers like Korea, Japan, and India. Luna: What about the Pimco warning on defaults? Does that affect emerging market debt? Lucas: It could, but not immediately. Pimco is warning about a spike in defaults in developed market credit. For emerging markets, the strong dollar is the bigger risk. The trade-weighted dollar at 120 makes it harder for EM countries to service dollar-denominated debt. But Korea is less vulnerable because it's a net creditor and has strong reserves. Luna: So Korea is a relative safe haven within EM right now. Lucas: That's how the market is treating it. The question is whether the rally is sustainable. If semiconductor demand continues to recover and the Iran deal goes through, Korea could outperform for several quarters. But if global demand falters, the rally could reverse. Luna: And China? Any chance of a turnaround? Lucas: It would take a major policy shift — something like a large fiscal stimulus or a resolution to the property crisis. Right now, the market is voting with its feet. Money is flowing out of China and into Korea and other EM markets with better stories. Luna: Quick honest thing — a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. If walking through the economy with us has made something click, that link is there. Lucas: Yeah, it's a small group that keeps this ad-free. We appreciate it. Luna: Back to Korea — what specific sectors within the Korean market are driving the gains? Lucas: Semiconductors are the biggest driver. Samsung and SK Hynix are up sharply. Also, auto stocks like Hyundai and Kia are benefiting from the weaker won and strong US demand. And shipbuilders are seeing orders from LNG and container ships. Luna: So it's broad-based. Not just one stock. Lucas: Exactly. The EWY ETF is up 13.6 percent in five days. That's a massive move. It suggests institutional money is rotating in a big way. Luna: What about the risk of a correction? 14 percent in a week is unusual. Lucas: It is. Some of that is short covering and momentum chasing. But the fundamental backdrop is improving. The Iran deal, if confirmed, would be a game-changer for Korea's energy costs. And semiconductor cycle is genuinely turning. I'd watch for pullbacks to add positions rather than chase here. Luna: Good advice. Thanks, Lucas. Lucas: Thanks, Luna. Next time we'll look at whether the Thailand rally has legs.