Korea's exports likely to improve due to strong external demand

Korean exports fell only 8.3% y/y in September, better than expected. On a seasonally adjusted m/m basis, exports rose 9.9% after plunging 11.4% in August (Jul: -0.1%), with the rebound driven in part by payback from delayed auto shipments in August. 

Despite today's better-than-expected print, the underlying trend remains soft, with overall exports down 6.6% YTD. This translates to a further contraction of 1.2% q/q sa in Q3, following a 3.9% decline in Q2. On a per-day basis, exports fell 10.4% y/y (Jul: -14.9%; Jun: -5.1%). 

The improvement masks a concerning underlying trend - high excess inventories. The inventory/shipment ratio, which improved marginally from the recent high of 1.29x in July to 1.28x (Jun: 1.29x; May-April: 1.27x) remains close to the 1.30x peak reached in December 2008 during the global financial crisis. 

"The still-elevated inventory level will continue to weigh on production, and ultimately exports, especially for electronics. The exports are likely to improve on a sequential basis, helped by stronger demand in the US for consumer electronics as we approach the start of year-end festive demand. This may alleviate some weakness due to high inventory buildup, in our view", argues Barclays.