Trump risk overshadows stock, forex markets

By Park Hyong-ki

Political uncertainty and risk stemming from Donald Trump’s victory in the U.S. presidential election and the scandal involving President Park Geun-hye are increasing volatility on stock and currency markets.

As expected by analysts since the scandal erupted and the forecast of Trump’s win, the local stock, bond and currency markets are facing an outflow of foreign capital amid ongoing policy uncertainties in both countries, making the outlook for Korea bleaker.

Foreign investors turned bearish during and after the election, selling stocks since early this month. Their net selling amounted to some 1.6 trillion won from November 1 to 15, according to the Korea Exchange. They had been net buyers over the last nine months, investing some 15 trillion won in the local stock market.

However, analysts say the double whammy of Trump risk and Park scandal, which are further weighing down on confidence, is expected to further boost capital outflow from the stock market, and weaken the won against the dollar.

Analysts expect the won to depreciate toward around 1,200 won in the short-term.

“It will be difficult to see a market rebound as foreign net selling continues,” said Kim Yong-gu, analyst at Hana Financial Investment, forecasting a further outflow of 1.5 trillion won by the end of this month in a report.

It will take time for global investors to see and absorb the path of Trump’s economic policy, who pledged to lower corporate taxes from 38 percent to 15 percent, impose higher import barriers and stricter immigration laws, and spend $1 trillion on infrastructure.

These measures, coupled with the Federal Reserve’s expected rate hike next month, are stoking concerns over inflation, which will not only push the central bank to raise its interest rate but also drive down the value of bonds.

Yields on Korea’s 10-year state bonds have recently surpassed 2 percent for the first time in 10 months, exceeding analysts’ initial forecast of 1.9 percent, while 50-year ones reached a record high of 2.138 percent on Thursday.

“Amid the weak won trend, heightened uncertainties over the Korean political landscape and increasing doubt over Korea’ s fundamentals (which will likely be affected by Trump’s trade protectionism), it appears that foreigners have little incentive to buy won-denominated bonds at this time,” said Kang Seung-won, an analyst at NH Investment & Securities.