New US credit rating downgrade to temporarily impact Seoul's financial markets: experts
Real-time movements of stock and currencies can be seen on electronic signboards at Hana Bank's dealing room in Seoul, Thursday. Yonhap
By Yi Whan-woo
The Korean won is anticipated to lose ground against the U.S. dollar only for a short term as it settles at the mid-1,200 level per dollar, in the wake of Fitch Rating's downgrade of the U.S.' credit rating, analysts said Thursday.
They also said the lowered U.S. credit rating will lead to a “short and shallow” fall of Korean stocks.
The experts argue that foreign investors are likely to temporarily pull out their cash from Seoul's stock market and return when they are confident that possible risks associated with the downgrading of the U.S.' credit rating clears away.
“The financial markets today are more resilient than they were 12 years ago and will not be swayed by the cut in the U.S.'s credit rating,” said Hana Bank researcher Seo Jung-hoon.
Seo was referring to Fitch's lowering of U.S. long-term debt from the highest AAA rating to AA+, Tuesday, as compared to S&P's stripping of the U.S. of its prized AAA status in 2011.
The 2011 case rattled markets worldwide because it was the first time in U.S. history that the world's largest economy did not get a perfect credit rating.
Seo's forecast comes as the Korean won closed at 1,299.1 per dollar, Thursday, depreciating by 0.6 won from the previous day's close and extending a losing streak against the greenback to three trading days.
The local currency weakened to around the 1,300 level, after the won-dollar rate reached 1,306.5 won on July 10, and has mostly hovered in the upper 1,200 level since then.
The benchmark KOSPI retreated 11.09 points or 0.42 percent to close at 2,605.39
It fell for two consecutive trading days after setting a yearly high of 2,667.07 on Tuesday.
Seo, nevertheless, argued that the currency and stock markets in Korea “have witnessed U.S. competence in dealing with debt” after S&P's downward revision of the country's credit rating.
He went on to say, “Fitch's downward revision thus will have a limited impact, possibly for a week, and the market will get back on track.”
Moon Jung-hiu, a KB Kookmin Bank economist, voiced a similar view, saying, “The market may rebound as the updated U.S. inflation data for July will be announced next week.”
U.S. inflation slowed for the 12th straight month in June at 3 percent and such a trajectory is highly expected to have continued in July.
The inflation cool down suggests the possibility of a U.S. rate cut, and accordingly, the won can strengthen to below the mid-1,200 level per dollar by the end of the year, according to Moon.
Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI), speculated that the trade surplus may go on for the remaining year after the trade balance stayed in the black since June and may contribute to the rise in relevant stock prices.