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U.S.-China trade truce delivers hope to investors

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Dec 04,2018
Beijing and Washington’s decision not to accelerate their trade war was celebrated by the Korean stock market Monday, helping the benchmark Kospi close 35.07 points, or 1.67 percent, higher to reach 2,131.93.

It was the biggest jump on Seoul’s primary market since Nov. 2 when the market closed 71.54 points higher, or 3.53 percent.

Market analysts predicted the Kospi could reach 2,200 by the end of the year.

“The decision to not boost tariffs on $200 billion worth of Chinese exports, China’s promise to substantially increase its imports of U.S. goods and the agreement being reached much earlier than initial expectations is seen as positive progress,” said Lee Seung-hoon, Meritz Securities’ chief economist.

U.S. President Donald Trump’s announcement that he would delay hikes in tariffs on Chinese imported goods from 10 percent to 25 percent that were supposed to go into effect Jan.1 came as global uncertainties have been easing, including the U.S. Federal Reserve hinting at slower interest rate increases.

“With the trade conflict and the U.S. interest hike cycle weakened simultaneously, there will be improvement in preferences for riskier investments,” said Park Sang-hyun, a researcher at Leading Investment & Securities.

Somewhat reduced tensions between the United States and China is expected to have a positive influence not only on the Korean financial market but also on Korean industries, especially semiconductors and automobiles.

Semiconductors, a vital Korean export, were expected to be badly impacted if the two countries’ trade war escalated. China buys 40 percent of all Korean semiconductor exports.

There is speculation that an ongoing investigation by Chinese antitrust authorities of global semiconductor manufacturers such as Samsung Electronics, SK Hynix and U.S. Micron is the result of the trade war between the two countries.

Additionally, considering that 78.9 percent of Korean goods exported to China, including semiconductors, are intermediary goods, any limit on Chinese exports to the United States would take a heavy toll on Korean exports. China buys 27 percent of Korea’s overall exports.

Korean automobile sales, which have been struggling both at home and abroad, are also expected to see an uptick. The easing of trade tensions is expected to improve Chinese consumer sentiment, which has been contracting as a result of the U.S. and China trade feud.

As tensions rose between the two countries, automobile sales in China fell for four consecutive months. According to a China Association of Automobile Manufacturers’ report earlier this month, new vehicle sales in October fell 11.7 percent compared to the same period a year earlier to 2.38 million units. China expects new car sales to drop this year compared to the previous year for the first time since 1990. Korea’s two main automobile manufacturers - Hyundai Motor and Kia Motors - are estimated to have seen car sales in China drop 12 percent and 18 percent respectively in September.

There is also a growing hope that the spread of global protectionism under Trump would ease, reviving global trade.

However, some economists warn that the agreement made over the weekend between Trump and Chinese President Xi Jinping is a temporary reprieve.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]


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