Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Heightened tension in Ukraine to hit carmakers, secondary batteries
Ukrainians gather for a "Mariupol is Ukraine" demonstration in Mariupol, Ukraine, Tuesday. Russian lawmakers on Tuesday authorized President Vladimir Putin to use military force outside the country, a move that could presage a broader attack on Ukraine after the U.S. said an invasion was already underway there. AP-Yonhap
By Anna J. Park
By Anna J. Park
With geopolitical upheaval between Ukraine and Russia pressing Korea's stock market downward, some industries, like automotives and secondary batteries, are expected to be especially exposed to greater risks and price corrections, if the situation worsens.
The rationale behind the forecast is that the automotive sector is Korea's top exporter to Russia. Korean conglomerates sold $2.5 billion worth of cars and $1.45 billion worth of car parts to Russia in 2021. Of the country's annual export volume to Russia, cars and car parts account for some 44 percent.
Hyundai Motor and Kia accounted for 10.3 percent and 12.3 percent, respectively, of Russia's vehicle market last year. When the two firms' sales volume is combined, the Korean car conglomerate holds the top market share in Russia. The Russian market takes up about 4.5 percent of the Korean automotive industry's global exports.
Market analysts thus raise concerns that if the current situation surrounding Ukraine gets worse, Hyundai Motor's manufacturing plant in Russia, which is the first full-cycle plant of an overseas car manufacturer located in the territory of the Russian Federation, will hit a snag in its operations. Moreover, the U.S. has threatened to add a raft of new sanctions against Russia. The Russian plant of Hyundai Wia, Hyundai Motor Group's automotive parts manufacturing affiliate, also faces similar risks.
“It is expected that Hyundai and Kia will face a greater amount of negative impacts on its exports if trade with Russia is limited,” the latest analysis report by Kiwoom Securities stated. “The exchange rate loss from the plunging ruble and increased production costs stemming from the soaring global prices of oil and raw materials should also be taken into consideration,” the report continued.
The country's secondary battery sector is also expected to face increased pressure on its production costs, as the prices of raw materials for key materials are expected to soar as well. Russia is one of the key global providers of aluminum and nickel. Surging global oil and gas prices are also forecast to increase production costs for local chemical companies.
Yet, market watchers generally see that the Ukraine-Russia crisis will have a limited impact on the semiconductor sector, thus sparing Seoul's blue-chip companies, Samsung Electronics and SK hynix.
“Although there's a possibility that the semiconductor industry could also face a disrupted supply of raw materials for chip production, the weight of raw material prices is not significant in chip production costs. Thus, the crisis would have a limited impact on memory chip makers' profitability,” the report noted.
Despite growing concerns, Korea's main benchmark KOSPI and tech-heavy KOSDAQ both finished strong, gaining 0.47 percent and 1.06 percent, respectively, at Wednesday's closing.
When considering past global crises, market analysts expect that the current Ukraine-Russia situation's impact on the Korean stock market will be decided by how it unfolds.
“The financial market has been exposed to the possibility of war, and the risk has already been somewhat factored into asset prices,” said Yoo Seung-min from Samsung Securities. “Yet the impact on the market will further be determined by how the situation will unfold, whether it will be an all-out war, or a short-term or long-term crisis.”