Weaker won a mixed blessing for exporters

A rapid decline of the Korean won against the U.S. dollar is expected to boost sales of local exporters such as automakers and electronics manufacturers, analysts said on Wednesday.

The depreciation of the local currency, or a drop in the value of the Korean won, is generally viewed as a factor that can drive down the prices of export goods making them more competitive on the global market.

Investors and analysts pay more attention to export-related shares on the KOSPI, but the question remains about whether exporters can really benefit amid growing concerns over the embattled global economy.

“Some of the exporters’ share prices are going up in connection with the Korean won’s weakness in the past sessions, but this might end up as a temporary phenomenon,” said Park Hee-woon, head of research at KTB Investment & Securities.

The most critical factor that might complicate the calculus for exporters and the fluctuation in the currency market is the ongoing economic uncertainties in the U.S., Europe and other key markets. A series of downgrades and credit warnings are sweeping the eurozone, threatening to put more pressure on bond markets around the world, including Korea, whose loan exposure to European banks is said to be sizable.

The troubles plaguing the world market, therefore, are likely to sap demand for Korean products, even at a discount brought by the sharp depreciation of the currency.

The weakening won can also translate into higher costs for manufacturers here as the prices of imported raw materials tend to go up. This could in turn lift consumer prices, a development that might prompt the Bank of Korea to raise benchmark rates to tame inflation, though the central bank kept the rates steady early this month for a third straight month, citing greater global economic risks.

Local authorities have scrambled to limit the slide in the won in the past week, using verbal interventions.

On the Seoul bourse, export-related sectors such as electronics, shipyard and automobile are staging relatively solid performances compared with other industries.

“The current trends concerning the Korean won will help electronics makers to improve their earnings,” said Kim Ji-san, analyst at Kiwoom Securities. Kim said he had a favorable outlook for companies whose earnings are closely linked with the currency, including Samsung SDI, LG Innotek, Samsung Electro-Mechanics, LS Cable & System.

In fact, Korean IT firms benefited from the virtuous cycle during the global financial turmoil in 2008 as they sold more products on the world market thanks to a cheaper Korean won and invested much of the extra profits to upgrade their products and competitiveness.

In contrast, food, distribution, financial shares might face downward pressure in terms of the weaker local currency as they rely heavily on the imports of raw materials.

Lee Sang-je, analyst at Hyundai Securities, said the drop in the value of the Korean won is clearly an advantage for exporters and a concern for firms which depend on imports of key materials, but what drives the latest fluctuation of the currency. “The rapid slide of the Korean won is largely a result of the spreading debt crisis in the eurozone, so how the European crisis will play out can affect the course of the Korean won,” he said.

The local currency closed at 1,149.9 won against the greenback on Wednesday, compared with 1,148.4 won a day earlier.

By Yang Sung-jin (insight@heraldcorp.com)