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Negative factors pressure market

Things won’t get better for Korea unless U.S, China end spat
July 05,2018
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Korea’s stock market, which has been on a steady decline over the past few days, fell below the 2,300 threshold for the first time in over a year this week over growing concerns of a global trade war.

The benchmark Kospi on Wednesday dipped by 7.30 points, or 0.32 percent, from the previous session to close the day at 2,265.46. The index, which ended last week at 2,326.13, fell below the 2,300-level for the first time in 13 months when it closed at 2,271.54 on Monday.

“The Kospi fell by more than 12 percent compared to its peak,” said Chung Myoung-ji, a market analyst at Samsung Securities.

The Kospi peaked earlier this year when it reached 2,598.19 on Jan. 29.

According to Chung, the index is currently facing a period of adjustment rather than a precipitous fall. He added, though, that the deepening trade dispute between the United States and China, Korea’s top two trade partners, is a crucial variable that could take a turn for the worse.

U.S. President Donald Trump in March this year said that his country would impose tariffs on Chinese goods in order to narrow its trade deficit. Although the tensions briefly showed signs of thawing in May, the situation went south again last month after the White House announced 25 percent tariffs on $50 billion worth of Chinese goods, some of which will go into effect on July 6.

“It’s very difficult to predict when a trade war will come to an end,” said Lee Eun-taek, a strategist at KB Securities, in a recent report.

Worsening tensions have negated the positive effects from improving relations between the two Koreas. These effects were seen as mitigating the so-called “Korea discount,” which describes the Korean stock market as undervalued due to geopolitical risk on the Korean peninsula, among other factors.

More bad news for Korea this week came from China, where a local court on July 3 decided to ban the sale of computer chips made by Micron, a U.S. chipmaker and the world’s second-largest semiconductor producer in the world.

The move by the Chinese court is seen as part of the trade dispute with the United States. Analysts argue it will also hurt Korea, since semiconductors make up about one fifth of Korea’s exports and nearly 40 percent of local semiconductor shipments go to China.

“The Chinese government’s decision is based on a number of strategic reasons,” said Doh Hyun-woo, a semiconductor industry analyst at NH Investment and Securities.

Doh explained that in addition to trying to gain the high ground in the trade war with the United States, China’s continued push to increase the competitiveness of its semiconductor companies played a significant role in the government’s decision to ban Micron chip sales.

China recently announced that it will become more “self-reliant” and increase the percentage of Chinese computer chips used in the country from around 10 percent last year to 70 percent by 2025.

The Korean chipmakers Samsung Electronics and SK Hynix, which are the largest and third-largest chip producers in the world, are expected to take a hit due to China’s efforts, according to Doh. In May this year, local offices of both Korean companies were raided by China’s anti-trust agency.

Samsung Electronics’ share price, which fell for three straight days from June 28 to July 2, closed Wednesday’s session slightly higher at 46,250, up 0.22 percent from the previous session. SK Hynix ended Wednesday at 85,000, down 1.28 percent from Tuesday.


BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]