The release of Korea’s August industrial
production (2.69%YoY) was in line with my expectation (2.73%YoY) with the help
of electronic components (17.8%YoY), mechanical equipments (17.1%YoY), and autos
(14.8%YoY). Average manufacturing capacity utilization rate fell by 1.1%p to
72.0% while inventory/shipment ratio climbed by 1.5%p to 120.7%. The fixed income
market didn’t react at all on strong industrial production as its entire focus
was on the foreign selling ahead of the holiday weekend.
I expect industrial production for
September to increase by +6.3%YoY(+2.7%MoM), beating the consensus of +5.32%YoY(+1.66%MoM).
Even considering that there were 2 more working days in September compared to the
same period last year, the exports had skyrocketed by +35.0%YoY, boosted both by volumes and prices. In particular,
petroleum products (+49.50%YoY), steels (+107.20%YoY), semiconductors
(+70.0%YoY) showed strong prints, with auto production maintaining improvement trend
driven by the base effect. Given that 3Q GDP including economic activity in
September released last Thursday, the market may tolerate a stronger industrial
production reading, but I think there is no reason to buy KTB in haste as the
market remains vulnerable to any domestic factors. Should
stronger-than-expected industrial production triggers a further sell-off, the
level around the last Friday’s low of KTB 3Y futures (107.44) will provide some
supports as strong domestic economic data had been reflected in the fixed income
market last week.
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