Looming trade war weighs on Seoul stocks

The trade impasse between the United States and China has weighed on Korea’s stock markets as the main index fell more than 1 percent over worries that the aborted negotiations between the two countries might lead to further escalations in their trade war.

The Kospi tumbled 1.38 percent to close at 2,079.01 on Monday compared to the previous trading day, while the junior Kosdaq bourse went down 1.9 percent.

The tensions between the world’s two largest economies exacerbated last Friday when the United States more than doubled tariffs on $200 billion of Chinese goods.

After the hike, U.S. President Donald Trump indicated that he will stick to a tough stance down the road, sending signals that the trade dispute could last longer.

“We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate,” Trump wrote in a post on Twitter.

“We will be taking in tens of billions of dollars in tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-tariffed countries.”

Analysts forecast that increased uncertainties over the U.S.-China trade war could intensify the downside risks facing Korea in the second half of this year as the country is already saddled with its own issues such as low economic growth generated by weak exports, low corporate earnings and a tepid jobs market.

“The Kospi will remain weak, given that there is no market momentum alongside the weak domestic economy and the escalated trade row,” said Lee Kyung-min, an economist at Daishin Securities.

“It is because the Korean economy is highly exposed to the United States and China and sensitive to fluctuations in the foreign currency market.”

But not all analysts bet on a bleak outlook. Huh Jae-hwan, an analyst at Eugene Investment & Securities, said that the two countries could return to the negotiating table.

“Hopes are rising that the United States and China will ultimately resume talks,” Huh said. “With the re-election in 2020, Trump will prefer trade concession from China over another round of tariff hikes on Chinese goods.”

Korea’s financial authorities also convened an emergency meeting to assess the impact that the tensions might have.

The Bank of Korea and the Financial Supervisory Service all vowed to stay vigilant, saying that they will take measures to stabilize the market when needed.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]