South Korea’s Bank of Korea reported an improvement in manufacturing sentiment in June, with the sector’s Business Survey Index rising to 80. The reading increased from 72 in the prior month.
Despite the gain, the index remains below the 100 threshold that separates expansion from contraction, indicating manufacturers still see conditions as weak overall. The move to 80, however, points to a firmer tone in June compared with May’s 72.
Manufacturing Sentiment, Trade Data, And Currency Strength
The rise in the Bank of Korea’s manufacturing BSI to 80 for June is a strong bullish signal, even though it’s still below the 100-point neutral mark. This jump from 72 indicates a significant improvement in sentiment and suggests the manufacturing sector’s downturn may be bottoming out. We should begin positioning for upside exposure to the South Korean market.
This improved outlook is supported by recent hard data, as April’s exports already showed a 5.2% year-over-year increase, primarily driven by a surge in semiconductor sales. This confirms that the forward-looking optimism in the BSI is grounded in actual performance. We see this as a reason to favor long call options on major Korean technology and industrial exporters.
The Korean Won has also shown strength, with the USD/KRW exchange rate falling from 1380 to around 1350 this month. This trend is likely to continue as positive economic indicators reduce perceived risk. Therefore, we should consider shorting USD/KRW futures or buying KRW calls to profit from further appreciation.
Market Indicators And Trading Strategies
Historically, sharp improvements in the BSI have often preceded sustained rallies in the KOSPI 200 index, similar to the pattern seen during the 2020 economic recovery. The index is already up 4% in May, showing that momentum is building. Buying KOSPI 200 futures or call spreads for July and August expiry looks attractive.
With a clearer economic direction emerging, we expect implied volatility on Korean equities to decline from its currently elevated levels of around 18%. This presents an opportunity to sell out-of-the-money puts on KOSPI-tracking ETFs like EWY. This strategy allows us to collect premium while expressing a moderately bullish view on the market.
