KORUS FTA a boon for auto, tech, textile shares

Shares of South Korean automakers, technology firms and textile companies are expected to benefit from the bilateral trade pact between South Korea and the United States, analysts said Wednesday.

The projection comes a day after the National Assembly approved the long-pending free trade agreement (FTA) between the two countries, paving the way for the landmark deal to take effect on Jan. 1 as planned by Seoul and Washington.

"In a preliminary analysis, manufacturers that export goods are expected to directly benefit from the FTA. The agriculture sector may undergo some damage and the outlook is neutral for financial and services companies," said Kim Jin-seong, an economist at Hanwha Securities Co.

"Considering the local equity market's portfolio, (the recent development) is favorable," Kim said.

Others said automakers and auto-parts manufacturers are likely to benefit the most from the KORUS FTA.

"The tax cuts will boost profits and bolster local companies' competitiveness by cutting costs," said Chae Hee-guen, an auto analyst at Hyundai Securities Co.

Under the KORUS FTA, the present 2.5-10 percent tariff on car parts will scrapped immediately with the 2.5 percent duties levied on cars to be dropped four years later. The 4 percent tariff on car tires will also be discarded in five years.

Shares of the auto sector traded higher early Wednesday, with Kia Motors gaining 0.41 percent and auto-parts maker Mando advancing 2.07 percent as of 10:03 a.m.

Tire manufacturers also traded higher on the Seoul bourse, with Nexen Tire jumping 2.76 percent.

Shinhan Investment Corp. said in a report that the textile industry is also projected to see a US$81 million improvement in trade balance annually, while technology firms are also expected to benefit from a tariff abolition on several product categories.

Cheil Industries, a textile and chemical affiliate of Samsung, rose 1.25 percent as of 10:03 a.m.

Stock market watchers, however, warned that the KORUS FTA effect may not instantly shore up stock prices.

"Exporters, such as autos, techs and machineries, are expected to receive a boost, and although the bourse may not immediately reflect such developments, there will at least be no negative repercussions," said Ma Ju-ok of Kiwoom Securities Co.