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U.S.-China trade war doesn’t rattle Korea yet

Aug 24,2018
The United States on Wednesday levied 25 percent tariffs on $16 billion worth of Chinese imports. China immediately retaliated by putting the same level of tariffs on $16 billion of American goods.

Since July 6, each country levied 25 percent tariffs on $34 billion worth of goods, bringing the total of exports slapped with new tariffs to $50 billion on each side.

And although low level talks are going on between the two countries, the U.S. government is looking into levying 25 percent tariffs on $200 billion worth of Chinese goods. Beijing has warned that it will levy 5 to 25 percent tariffs on $60 billion worth of American goods if the Trump administration actually goes through with its threat.

While the escalating trade conflict between the world’s two largest economies has cause global concern, the Korean stock market wasn’t heavily affected, closing 0.41 percent or 9.27 points higher on Thursday than the previous day.

One major reason is that the new tariffs were telegraphed in advance and some analysts believe the two sides will eventually reached an agreement. If they do, that could help the Kospi rise around the third quarter.

At the beginning of the year, the Kospi enjoyed a bullish rally that even pushed it to beyond 2,600 in inter-day trading. But lately, it has been hovering around the 2,200 mark.

The trade war between the United States and China is considered one of the biggest factors keeping the Kospi down, along with the recent fear of an emerging markets crisis after Turkey’s currency and debt woes.

However, there is growing speculation that the Chinese government is under pressure to strike a deal with the United States as its economic indicators have been sagging lately.

China’s 6.7 percent economic growth in the second quarter was 0.2 percentage points lower than in the first three months of the year. There’s already consensus that, in the second half, China’s growth will slow to 6.5 percent.

The Chinese stock market has been bearish. Last week alone the index fell every day, closing the week at its weakest level since January 2016. The close on Aug. 17 was a 25 percent drop compared to Jan. 29, when it hit a high for the year of 3,587.03.

Market analysts are projecting that once the trade conflict is resolved, the Kospi could rise to around 2,580 and 2,650 within this year. Korea Investment & Securities is even more optimistic as it projected the Kospi to reach as high as 2,800.

“While the conflict between the United States and China is getting worse, it seems the United States has no intention or reason to expand the situation to the point of driving the global economy into the ground,” said Shin Dong-suk, head of Samsung Securities’ research center. “In reality, Donald Trump, who is facing a mid-term election in November, will look for ways to resolve the situation and make the Chinese yield.”

He said Korea’s stock market will likely see a mild recovery in the third quarter.

Yoon Hee-do, head of Korea Investment & Securities’ research center, said while the conflict between the United States and China is still worrying, the depreciation of the Korean won against the U.S. greenback will likely improve the performances of listed companies in the third quarter by raising the price competitiveness of their exported goods.

But some believe the Kospi might not see a significant increase.

“It’s likely that the market could be moving within a limited range,” said Lee Kyung-soo, head of Meritz Securities’ research center.

Some raised concerns about Korea’s semiconductor companies, with demand for mobile DRAM chips reaching saturation and Chinese memory chip manufacturers overproducing.

But Lee Chang-mok, head of the NH Investment & Securities Research Center, said there are still hopes for favorable news such as improvement in South and North Korea relations.


BY LEE HO-JEONG, CHO HYUN-SOOK [lee.hojeong@joongang.co.kr]
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