South Korean Manufacturing Activity Accelerates in June 2017

After a year of contraction, the Nikkei South Korea (EWY) Manufacturing PMI increased to 50.1 in June 2017 compared to 49.2 in May. The PMI in June indicates expansion in the country’s manufacturing activity, as its PMI rose above the critical mark of 50.

The increased new order work particularly contributed to lifting the PMI above 50 in June 2017. The chart below illustrates South Korea’s manufacturing PMI over the last year.

Despite the rise in new orders, the manufacturing sector in South Korea (KORU) broadly stagnated due to the reduction in output and employment. External factors such as demand from China (FXI) continued to fall, affecting the country’s manufacturing activity in June 2017. Production volumes declined in June, following the year-long contraction trend.

New work orders recorded growth for first time in June 2017 over the last 12 months. The overall rise in new work indicated that optimism in the manufacturing sector is reaching a 14-month high in June. The positive forecast for output and demand has also helped improve purchasing activity in June.

The new product introductions and a slight improvement in overall demand have helped the country’s manufacturing sector move into expansionary territory in June. The positive forecasts for output and demand also helped lift both purchasing activity and input inventories during the month.

New work orders in June grew with improvements in demand from Japan (EWZ), the Middle East, and the US (SPY). However, the consistent weakness in China’s (FXI) demand seemed to impact the overall demand in the manufacturing sector in South Korea.

Input prices and product prices stayed low in June 2017, as a rise in raw material prices was offset by stronger domestic currency. Manufacturers also kept their product prices low for a second consecutive month due to a highly competitive market.

As an emerging market participant (EEM), South Korea saw improved optimism in June as economic activity is expected to pick up in the next 12 months. The iShares MSCI South Korea Capped ETF (EWY), which tracks the South Korean equities, fell about 2% in June 2017.