Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / Why South Korea Stocks Are Crashing While China Rallies
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- Lucas: Luna, did you catch the numbers out of Asia this week? South Korea's main equity index just had its worst five-day stretch in over a year, down more than twelve percent. Meanwhile, Chinese stocks rallied nearly six percent. Luna: I saw that. Taiwan was down almost eight percent too. That's a serious divergence. What's driving it? Lucas: A combination of factors, but the clearest trigger is the Iran crisis. After the surprise attack and President Trump's threat of retaliation, oil prices spiked. Both South Korea and Taiwan are massive energy importers — they buy almost all their crude from abroad. Higher oil costs hit their trade balances and corporate margins hard. Luna: And China? They're the world's biggest oil importer, so shouldn't they be hit too? Lucas: You'd think so, but China is actually seen as a potential mediator here. Plus, there's an expectation that Beijing might ramp up stimulus to offset any global slowdown. The market is pricing that in. You can see it in the ETF flows — FXI up almost six percent in five days, while EWY and EWT are getting crushed. Luna: So it's a geopolitical risk premium being applied selectively. Korea and Taiwan are on the front lines of a potential conflict — North Korea, the Taiwan Strait — while China is perceived as a safe harbor. Lucas: Exactly. And there's another layer: the Federal Reserve. On Wednesday, the Fed held rates steady, but three members voted to hike. That's a hawkish signal — it means inflation is still a concern. A more aggressive Fed would strengthen the dollar, which is bad for emerging markets with dollar-denominated debt. Korea and Taiwan have relatively low external debt, but the sentiment spillover is real. Luna: Speaking of things that keep me up: how much of this analysis we can do because we don't have advertisers leaning on us? That's actually a rare thing in business media. If today's episode moved your thinking forward even a little, the way we keep this ad-free is listener support. Buy me a coffee dot com slash fexingo — makes a difference. Lucas: And it really does. We don't do sponsors, so every contribution goes straight into keeping the research and production independent. Alright, back to the divergence. Lucas: Now, beyond geopolitics, there's a structural story. South Korea and Taiwan are the two biggest semiconductor manufacturing hubs outside the US. Any disruption — whether from a war in the Middle East that jacks up energy costs, or from a potential conflict in the Taiwan Strait — makes investors rethink the entire supply chain. Luna: Right. And that feeds into the US trade deficit numbers we saw this morning: the deficit widened to $77.6 billion in May, up from $54.6 billion in April. A lot of that is electronics imports from Asia. Lucas: Boom. The US is importing more tech goods even as it tries to reshore chip production. The CHIPS Act money is flowing, but it'll be years before factories in Arizona or Ohio are online. In the meantime, America is as dependent as ever on Korean and Taiwanese fabs. Luna: So if those countries become riskier, that's a problem for everyone. Apple gets a huge chunk of its chips from Taiwan and Korea. Lucas: Exactly. Apple shares have been underperforming the S&P this week — down about one and a half percent. The market is starting to price in supply-chain disruption risk. And Samsung Electronics, which accounts for a big chunk of the Korean index, lost tens of billions in market cap. Luna: Meanwhile, China's semiconductor industry is more insulated — it's largely domestic-facing, and Beijing has been pushing self-sufficiency for years. Maybe that's part of the rally. Lucas: That's a really good point. China's tech sector, especially the chipmakers, are seen as beneficiaries of deglobalization. They're building their own supply chains, and the government is pouring capital into it. So when global trade gets disrupted, China's homegrown players win market share. Luna: But is this divergence sustainable? Can China really decouple from the rest of Asia? Lucas: Short term, yes — because of the geopolitical shock. But over the medium term, China still relies on Korean and Taiwanese components for its own electronics exports. A lot of Chinese phones and laptops contain Samsung memory chips and tsmc made processors. So if those supply chains break, China gets hurt too. Luna: So the divergence might be a buying opportunity in Korea and Taiwan if you believe the sell-off is overdone. Lucas: Some value investors are already sniffing around. The key question is: will the Iran situation escalate further? If it does, oil stays high, and that's a drag on Korea and Taiwan. If it de-escalates, you could see a sharp reversal. But I think the bigger structural shift — the reassessment of supply-chain risk — isn't going away. Luna: What about the trade balance? The US deficit is already at $77 billion. If the dollar weakens — it's down a bit this week to 120.7 on the trade-weighted index — that could help exports, but maybe not enough to close the gap. Lucas: The dollar weakening is actually a double-edged sword for Korea and Taiwan. It makes their exports cheaper, which could boost earnings, but it also makes their dollar-denominated oil imports more expensive if the won and Taiwan dollar don't appreciate enough. Right now, the won is actually weakening against the dollar, so they're getting squeezed from both sides. Luna: So the same shock is hitting them through multiple channels: oil, trade policy, and risk appetite. Lucas: Exactly. And the corporate response is already visible. Several Korean and Taiwanese electronics firms have announced accelerated investment in overseas production — places like Vietnam, India, even the US. They're trying to diversify, but that takes years and billions. Luna: In the meantime, the markets are voting with their feet. We saw EM ETFs like EEM and VWO down as well, but the big moves are concentrated. Lucas: Right. EEM down three and a half percent in five days, VWO down about half a percent. So it's not a blanket EM sell-off — it's a targeted repricing of geopolitical risk. And I think that's the real story of this week: investors are finally waking up to the fact that the old assumption of stable Asian supply chains is broken. Luna: So where does that leave multinationals operating in the region? They have to factor in a new risk premium on everything from factory insurance to logistics. Lucas: Absolutely. It changes the cost of doing business. If you're a multinational with a plant in South Korea, you're now paying higher insurance premiums, perhaps hedging more aggressively against currency risk, and maybe even holding larger inventories — which ties up capital. Luna: And that feeds back into trade flows. The US trade deficit might actually widen further in the near term as companies front-load imports to hedge against disruptions. Lucas: Good point. The trade deficit numbers are backward-looking, but they show a trend: the US is importing more, partly because firms are trying to build buffers. That's inflationary, which is exactly what the Fed is worried about. Luna: So the Fed's three dissents for a hike — that makes more sense now. They see the trade deficit and inflation pressures building. Lucas: Yeah. And if the deficit keeps widening, you might see more talk of tariffs or protectionist measures, especially if Trump is back in the White House. He's already taking a hard line on Iran — could be a preview of trade policy too. Luna: It feels like we're in a new phase: markets are not just reacting to data, but to geopolitical narratives. And the divergence we see today is a snapshot of that narrative in action. Lucas: Well said. I think the million-dollar question is whether China can hold onto its safe-haven status if the Iran crisis deepens. If oil spikes to $120, China's import bill balloons and its trade surplus shrinks. That could flip the narrative. Luna: So maybe the divergence is temporary, but the underlying shift in supply-chain risk is permanent. Lucas: That's my bet. We're watching a redrawing of global trade corridors in real time. And it's happening faster than most companies have prepared for.