Decoupling of South Korea's KOSPI from Chinese Economic Risks

On September 17, 2025, iM Securities reported a notable decoupling between South Korea's KOSPI stock index and the Chinese economy. Researcher Park Sanghyun highlighted that the correlation between these two markets has significantly weakened, suggesting that the domestic stock market is moving out from under the shadow of China risk. This shift is attributed to a combination of factors, including a trade deficit with China that has not worsened, a diversification of South Korean exports, and the emergence of new industries driving domestic growth.

The Straits TimesThe Straits Times

Despite a strong rally in Chinese stocks, the Chinese economy faces serious challenges, including a "triple slowdown" affecting consumption, production, and investment. Key indicators revealed that fixed asset investment growth from January to August 2025 was only 0.5%, and manufacturing investment growth was at its lowest since December 2019. Park noted that these trends indicate a struggle with excessive investment risk, compounded by high tariffs imposed by the United States on Chinese exports.

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Park assessed that the impact of China's economic slowdown on South Korea's economy and financial markets would be limited. He identified three reasons for this resilience: the stability of the trade deficit with China, the shift in South Korea's export focus towards semiconductors, shipbuilding, and defense, and a significant reduction in the proportion of exports to China. Additionally, the global artificial intelligence investment cycle and abundant liquidity are contributing to the decoupling phenomenon.

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Park Sanghyun emphasized that if the U.S. Federal Reserve resumes its rate cut cycle, the People's Bank of China would have more room to lower rates, potentially stimulating the Chinese economy further. He predicted that additional stimulus measures from China could support the domestic stock market's rise, despite the ongoing sluggishness in the Chinese economy.

While the decoupling narrative is gaining traction, some analysts caution that the long-term effects of China's economic challenges could still pose risks to South Korea's market stability. Concerns remain about the potential for renewed volatility if China's economic situation deteriorates further or if U.S.-China trade tensions escalate.

As the global economic landscape evolves, South Korea's KOSPI will likely continue to navigate the complexities of its relationship with China. The upcoming decisions by the U.S. Federal Reserve and the People's Bank of China regarding interest rates will be critical in shaping market expectations and economic forecasts for both nations.

“Although deflationary pressures in the Chinese economy persist, unlike before, the decoupling phenomenon between the Chinese economy and KOSPI is becoming more pronounced.” — Park Sanghyun, Researcher at iM Securities