Trump risks weigh on Seoul bourse
By Nam Hyun-woo
The U.S. stock market rally that came after the inauguration of U.S. President Donald Trump has begun losing momentum, while Korean stock market is also fluctuating amid fears of so-called Trump risks weighing on the bourse here.
The country’s main index KOSPI ended at 2,080.48 points, Wednesday, up 0.62 percent or 12.91 points from a day earlier. The rise came after Tuesday’s plunge to 2067.57 points, down 0.77 percent or 16.02 points from a session earlier. Throughout Tuesday, the benchmark index showed downward movement and followed other bourses across the globe.
On Monday (local time), the United States’ Dow Jones industrial average sank 122.65 points, or 0.6 percent, to 19,971.13 and the Standard & Poor’s 500 index also declined 13.79 points, or 0.6 percent, to 2,280.90.
At the same time, Japan’s benchmark Nikkei 225 shed 1.3 percent to 19,126.99. Australia’s S&P/ASX 200 dropped 0.6 percent to 5,630.60.
The downward movements came after Trump’s travel ban on seven Muslim-majority countries. The executive order threw a huge impact among investors, who had raised the Dow Jones index above 20,000 and the KOSPI to near 2,100 points within a week after his inauguration.
The protectionist move especially threatens the auto industry here. According to the Korea International Trade Association, cars and auto parts accounted for 36 percent of Korea’s outbound shipments to the United States in 2016, outpacing computers with 29 percent, IT and home appliances with 27 percent and semiconductors with 3 percent.
The travel ban hit Korea’s automotive stocks hard. Hyundai Mobis shares closed at 245,000 won, recovering from a 9.02 percent nosedive a session earlier. On top of the concern over the Trump risks, Hyundai Mobis’ poor fourth quarter earnings swayed the price.
On Tuesday, Hyundai Motor and Kia Motors also shed 2.11 and 3.58 percent, respectively.
“The No. 1 target in Trump’s protectionist policy is the auto industry,” said Lee Kyung-min, an analyst at Daishin Securities. “Exports account for 47 percent of Korea’s GDP and the main target of a potential Korea-U.S. FTA renegotiation would be cars.
Analysts say that the concerns over Trump’s moves are starting to affect the domestic bourse.
“The odds are long over KOSPI’s surge over 2,100 points, which only happened twice since 2010,” said Lee Jae-man, an analyst at Hana Financial Investment. “KOSPI’s rise is hampered by two factors, which are diminished expectations of the Trump administration and the record high ratio of stocks owned by foreign investors,” he said.
On Tuesday’s KOSPI market, individual and institutional investors each net purchased 131.6 billion and 119.2 billion won. However, the index was dragged down by foreign investors’ net sell-off worth 302.9 billion won.
“Just a week after Trump’s inauguration, concerns are coming as realities,” said Kim Il-goo, an analyst at Hanwha Investment & Securities. “Some of his pledges, such as a $1 trillion investment on infrastructure, are positive for the stock market, but setting up barriers on foreign trade or travel ban raise uncertainties.”
Kim stressed that what raises concern is that Trump is yet to sign an executive order regarding trade barriers. “As we have seen in the travel ban, a far-fetched policy has been executed. This raises the likelihood that he may come up with super hard line trade policies,” Kim said.