ING’s Asia-Pacific research expects South Korea’s August industrial production release on Wednesday to show faster growth. Consensus sees output rising 4.5% year on year, up from 3.6% in July, while month-on-month production is forecast to increase 0.5%. The same note points to a wider trade surplus even as trade growth cools, with technology and semiconductor exports providing support.
For September trade figures due Thursday, export growth is projected to moderate to 61.2% year on year and import growth to 20.7%. Even with that easing, the surplus is forecast to expand to $38.4bn. On prices, headline CPI inflation is expected at 3.0% year on year in September versus 3.1% in August, while core inflation is seen slowing to 2.8% from 3.4%, indicating softer underlying pressures.
Opportunities in Currency and Bond Derivatives
We see a prime window for derivative traders to position for a stronger Korean Won in the coming weeks. With South Korea’s trade surplus projected to widen to $38.4 billion on the back of resilient semiconductor demand, the currency is set to gain ground. We suggest buying KRW call options or shorting USD/KRW futures to capitalize on this export-driven momentum.
On the fixed-income side, we expect Korean Treasury Bond (KTB) futures to rally as domestic price pressures cool. The anticipated drop in core inflation to 2.8% gives the Bank of Korea ample room to adopt a more accommodative monetary policy down the line. Traders should look to establish long positions in 3-year KTB futures to profit from falling yields.
Rally Prospects in Equity Derivatives
Finally, we recommend targeting the equity derivatives market as industrial production growth accelerates to an expected 4.5%. Historically, strong industrial output combined with a widening trade surplus has triggered significant upward moves in the KOSPI 200 index. Buying near-the-money call options on the KOSPI 200 will allow traders to capture this momentum as high-tech manufacturing leads the economic expansion.
