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Local currency, stocks emerge as biggest losers amid global slowdown
By Jhoo Dong-chan
The nation's economy finds itself between a rock and a hard place ― the growing economic uncertainties raised by the escalating U.S-China trade war and its own trade war against the Japanese government.
Top government officials, including Deputy Prime Minister Hong Nam-ki, Financial Supervisory Service (FSS) Governor Yoon Suk-heun and Bank of Korea (BOK) Governor Lee Ju-yeol, convened a series of joint emergency meetings earlier this month to discuss the current economic situation.
They confirmed in chorus during the meetings that Korea's economy is "still sound" enough to withstand the current headwind, citing the country's $400 billion worth of foreign exchange reserves.
Fears, however, continue to grow among investors as the nation's stock market suffered a nosedive this month.
The Korea Exchange (KRX) even issued a five-minute sidecar on the secondary Kosdaq market for the first time in three years as the index fell by over 6 percent during the session on Aug. 5. A sidecar is a restraining measure to temporarily suspend the trading of stocks in case of a sudden market fluctuation.
The benchmark KOSPI dipped below the 1,900 point mark during the session on the following day.
The Morgan Stanley Capital International (MSCI) index of the nation's stock market also slid 1.1 percent on Aug. 6 from its Jan. 2 figure.
The MSCI index is a measurement of stock market performance evaluating eight factors in developing its indexes ― momentum, volatility, value, size, growth, size nonlinearity, liquidity and financial leverage. Korea was one of only four G20 member countries that displayed a negative MSCI index growth in the period.
This is in stark contrast to other major economies' stock markets that enjoyed growth over 10 percent in their MSCI indexes. Even Japan's MSCI index jumped 1.8 percent on Aug. 6 from its Jan. 2 figure.
Korea's vulnerability to external factors is also evident in its Korean won value.
The exchange rate for Korean won to the U.S. dollar has also depreciated by 8.9 percent between Jan. 2 and Aug. 6.
Of G20 member states, the Argentine peso is the only currency that displayed a worse depreciation this year as its value to the U.S. dollar slid 20.7 percent in the period.
"Strong distrust about the nation's stock market is prevailing especially among domestic investors," said a major brokerage researcher who asked not to be named.
"It is natural for investors to seek less risky assets if global uncertainties grow. This trend is more evident among domestic investors. They are now dumping their equity stocks and buying gold and dollar assets. The trend is believed to be prevailing for a while."
Market analysts said in chorus that firms' disappointing earnings are another reason behind the nation's sluggish stock market apart from the renewed U.S.-China trade row and Korea's trade war with Japan.
According to online market researcher CEO Score, 55 domestic firms which announced their first-half earnings posted a total 592.3 trillion won in sales with a 42.8 trillion won operating profit.
The sales jumped 1.2 percent year-on-year, but their operating profits fell 39.8 percent in the same period.
Their disappointing earnings were led by poor figures from the nation's semiconductor sector. Samsung Electronics' operating profit was down 58 percent year-on-year whereas SK hynix suffered an 80 percent drop in the same period.
Experts said it could take some time to recover the 2,000 point level.
"It is true global uncertainties were mounting since Washington designated China as a currency manipulator. It is a big deal, but investors overreacted a little too much to external factors," Samsung Securities Research Center head Oh Hyun-seok said.
"The KOSPI has entered into a correction period. The stock market will find its range box at the current level."
Yonsei University economist Sung Tae-yoon said the government should create a more accommodative environment for firms to recover from their first half earnings shock.
"Overseas environments are deteriorating rapidly for firms as more economies turned themselves into a protectionist. It is essential for the government to create more accommodative environment for firms to overcome the current headwind," he said.
"However, even the domestic environment isn't very favorable for firms at the moment. The minimum wage has raised rapidly over the past two years. The 52-hour workweek is another hurdle for domestic firms to cope with."
