Korea’s financial instability drags into 2nd week

The won’s depreciation and the drop in Korean stocks that started last Thursday has continued, as worries about a growing trade war between the world’s two largest economies and an interest rate hike in the United States have yet to subside.

The benchmark Kospi lost 27.80 points, or 1.16 percent, on Monday to fall below the 2,400 barrier for the first time in three months. The won depreciated to 1,100 won, reaching its lowest value in seven months.

Foreign investors sold their holdings in Korea for the fifth consecutive trading day.

On Friday, the White House officially announced it would slap 25 percent tariffs on 1,102 Chinese goods worth a total of $50 billion, citing unfair practices by China.

“My great friendship with President Xi of China and our country’s relationship with China are both very important to me,” U.S. President Donald Trump said on Friday. “Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable.”

Trump focused on China’s acquisition of American intellectual property and technology, saying that it not only harms the United States’ economy and national security but also “deepens” massive trade imbalance. The Trump administration applied the tariffs despite President Xi Jinping’s warning that it reconsider.

Most of the Chinese goods hit with tariffs are high-tech products that the Chinese government has been pushing as part of its Made in China 2025 initiative.

The Chinese government, in response, slapped 25 percent tariffs on 659 American goods, also worth $50 billion.

“As the trade conflict between the United States and China expanded, it started to affect other Asian manufacturing countries,” said Ryu Yong-seok, head of the market strategy team at KB Securities. “As the won depreciated, foreign investors have been selling their stock holdings.”

Other experts say the trade war between the two major economies has further burdened the stock market. It was already hit by several events from last week, including the U.S. Federal Reserve’s interest rate hike and the European Central Bank’s announcement that it would end its quantitative easing policy by the end of this year.

Despite the recent bearish trend in financial markets, the credit rating agency Moody’s on Monday kept Korea’s sovereign rating at double-A 2. It noted that, despite the growing trade conflict, Korea’s economy will likely show resilience and that easing geopolitical tensions and structural reforms pushed by the Moon government will be positive factors.

“Real GDP growth accelerated to 3.1 percent in 2017 from 2.8 percent the year before, representing the fastest pace of growth among advanced G-20 [Group of 20] economies,” the report said. “Moody’s expects [the decline in workforce due to aging population] will be off partly offset by comparatively strong productivity growth, supported by investment in innovation.

“While rising trade protectionism poses risks for trade-reliant economies, the South Korean economy’s broad diversification, high level of competitiveness and fiscal space mitigates its expert dependency.”

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