Back in May, when stocks had quickly recovered from the February whiplash amid Wall Street's erroneous in retrospect narrative that the bedrock of the stock market, solid corporate earnings, was unshakable, Bank of America revealed that not all was well and that both profit and economic growth was suddenly in jeopardy as "South Korean export growth, a notoriously good global cyclical indicator, had just turned negative for 1st time since 2016."
Since then, this remarkable "leading indicator" had only sunk further, with the latest print in South Korean exports slumping to a -8.2% Y/Y print, implying a collapse in Global EPS 12 months onward.
And while the thesis of collapsing global earnings has yet to play out - even if recent earnings certainly suggest that a major decline is set for 2019 - as far back as 6 months ago it was becoming increasingly clear that South Korea's economy - which is extremely reliant on its export industries for economic growth - was headed for a world of pain.
We got confirmation of that moments ago when its GDP just printed a horrible miss, when GDP printed just 2.0% Y/Y, below the 2.3% estimate and Q2's 2.8%. In fact, to find a weaker print one would have to go all the way back to Q3 of 2009 when the economy expanded only 0.9%.
And whether due to the shockingly bad GDP print, or as follow through to today's stock market massacre, South Korea's Kospi index tumbled after the open, sliding over 2% and becoming the latest index to enter bear market territory as a wave of liquidation is sweeping around the globe.
It gets worse: the BOK is widely expected to hike rates next month as it struggles to keep up with the Fed's own rate hikes. BofA and various other banks expect the central bank to tighten policy to stabilize the financial system as Fed rate increases widen Korea's yield gap to the U.S. and spur outflows amid the global rout in risk assets. The problem with the upcoming rate hike, as Bloomberg's Kyoungwha Kim writes, is that "BOK tightening would deal a huge blow to already fragile consumption as the labor market shows no signs of a recovery. That will also hit capital spending, which nosedived last quarter as construction and facilities investments contracted by 8.6% and 7.7%."
This, of course, is the dilemma most EM investors, and central banks face: slow their economies and collapse their markets or suffer destabilizing capital outflows.
Expect many more market shocks to emerge in the coming days as the shockwave from the latest equity meltdown reverberates around the globe.