Weaker dollar eases S. Korea market woes

Downward pressure on South Korea’s markets appears to be on the wane, as the US dollar is taking a breather against currencies in emerging markets including Korea. 

After opening higher on Monday morning, both the Kospi and the Kosdaq lost their earlier gains in the afternoon. The top-tier Kospi remained nearly flat, edging up 0.04 percent at closing, while the Kosdaq was down 0.3 percent.

Markets here rebounded Friday from the price floor they had hit earlier last week, while signs of a weakening dollar began emerging amid hopes that China and the United States would resolve their trade dispute by November as they are slated to hold talks this week.

These developments also coincided with the fall of the dollar-to-won currency exchange rate, which began Friday and has lasted for two consecutive days. When Monday’s session closed, the rate was 1,121.4 won, 3.5 won stronger against the greenback. A drop in the rate translates into a weaker US dollar.

A slowdown in the decline of the Korean won would “ease uncertainties that are considered when estimating the stock price floor,” Lee Eun-taek, an analyst at KB Securities, wrote in a note.

Local analysts were divided as to whether the dollar’s bearish trend against the local currency would continue.

Eyes should be on the value of the Chinese yuan against the dollar, wrote Kim Ji-man of Hyundai Motor Investment & Securities. The dollar-to-yuan exchange rate came to 6.88 yuan on Friday, the lowest point seen last week, after reaching a 15-month high of 6.93 yuan on Wednesday. A lower rate means the Chinese yuan is getting stronger against the dollar.

“The Chinese yuan has been on a steep decline against the dollar and is reaching the lowest (point) since US President Donald Trump was elected, so there would be limited possibilities for an additional drop,” he wrote. “If the pace of the weaker Chinese yuan continues to slow, the Korean won will also stabilize.”

But Kim Doo-un, an economist at KB Securities, wrote in a note that fears of a stronger dollar would resurface, depending on the results of the US Federal Reserve’s Jackson Hole meeting slated for this week.

“We should keep a wary eye on whether the US Fed would support the stronger dollar,” he wrote. “The higher the Fed’s anticipation for monetary normalization is, the more upward pressure there will be (on) the dollar,”

Once the rise of the US dollar slows down, this will likely prevent any further decline in the price of gold, which has already hit bottom, according to Kim Hoon-gil, an analyst at Hana Financial Investment. Gold in Korea hit a 30-month low, closing at 43,190 won ($38.50) per gram, according to the Korea Exchange.

“An additional drop in (the price of gold) will be limited,” Kim wrote in a note. “If we see a relief of the strong dollar, (the price of gold) will be able to make an elastic rebound.”

Meanwhile, financial authorities vowed Monday to push forward with their efforts to prop up Kosdaq-listed stocks through state-led measures and to address market volatilities.

Kim Yong-beom, vice chairman of the Financial Services Commission, assured the press of a set of state-led measures, including a new 200 billion won scale-up fund to be launched in November, and an additional plan to pour 100 billion won into the fund, ahead of a meeting with officials of the KRX, analysts and fund managers held at the KRX headquarters in Seoul.

By Son Ji-hyoung
(consnow@heraldcorp.com)