Kospi ends 4-day losing streak

Korean stocks had their first up day in five. Even the won appreciated.

The benchmark Kospi gained 6.03 points, or 0.29 percent, to close at 2,108.04 on Friday.

But it was a volatile day. Shares rose 16.63 points, then started to fall after foreign investors sold shares on news that the United States and China failed to reach an agreement on a trade deal before midnight in Washington.

The won closed at 1,177 to the dollar from Thursday’s 1,179.8, but fell to 1,181.4 at one point, a two-and-half-year low.

The last time the won fell to that level during trade was on Jan. 19, 2017.

Finance Minister Hong Nam-ki on Friday ordered the government to be on full alert.

“The volatility of the financial and foreign exchange markets not only in the local market but also in the international markets is growing as uncertainties surrounding the trade negotiation between the United States and China is expanding,” Hong said. He added that the government will be monitoring the financial markets as well as the impact on the real economy 24 hours a day.

The Korean government held a meeting later on Friday of related institutions, including the Ministry of Trade, Industry and Energy, the Korea International Trade Association and Korea Trade Insurance.

The government said it will come up with a slew of measures to help bolster Korea’s exports, including plans to expand the export of consumer goods this month, measures on increasing digital trade next month and measures to diversify the Korean export markets in July.

According to the Korea International Trade Association, the higher tariffs imposed on Chinese goods will also increase the burden on Korean companies that have production plants in China. Nearly 79 percent of goods exported to China from Korea as of 2017 are intermediate materials.

“Such a large tariff increase will also result in significant transmission shocks for other Asian economies due to the integrated Asian manufacturing supply chain providing raw materials and intermediate goods for China’s manufacturing sector,” said Rajiv Biswas, IHS Markit chief economist.

But only 5 percent of the final processed goods that use the intermediate materials are shipped to the United States. The larger concern is the possible spillover of the trade conflict and its effect on the Korean economy.

The Hyundai Research Institute estimates that when the Chinese economy contracts by 1 percentage point, Korea’s export growth falls 1.6 percentage points and the Korean economy contracts 0.5 percentage points.

Bank of Korea Gov. Lee Ju-yeol on Friday noted that the uncertainty created by the trade negotiations has grown, but he added that as both sides are still engaged, the authorities should remain calm and continue to observe.

Some market analysts are already predicting that Korean stocks could fall further.

“If China retaliates, the market could fall below 2,000,” said Han Dae-hoon, an SK Securities analyst.

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