Photographer: SeongJoon Cho/Bloomberg

Won's 8% Jump Set to Bash Korea Exports

  • ‘Below 1,000 our exporters will be bashed,’ Oh Jung Gun says
  • Hyundai Motor, LG Electronics shares plunge as Kospi gains

South Korean exporter shares are slumping as the won’s charge toward 1,000 against the U.S. dollar prompts a leading party official to warn they risk being “bashed” globally.

The currency gained 8 percent against the greenback and the Chinese yuan from June 24 through Wednesday, the top performance in Asia, and 6 percent versus the Japanese yen, crimping the competitiveness of Korean car and electronics producers against rivals. Shares in Hyundai Motor Co. fell 10 percent since April 1 and LG Electronics Inc. dropped 14 percent even as the benchmark Kospi index gained 3.8 percent. 

“The more the won strengthens, the worse off exporters like Hyundai are,” said Feynman Jeon, an auto analyst at Daishin Securities Co. in Seoul. He estimates every 30 won per dollar gain erases 200 billion won in operating profits for the carmaker, equivalent to 3 percent of 2015’s total.

Asia’s fourth-largest economy has been grappling with sluggish local demand and a 19-month slide in exports, equivalent to about 50 percent of gross domestic product. The Bank of Korea held its key rate steady in Thursday’s meeting after a surprise cut in June. Oh Jung Gun, a member of the leading Saenuri party’s emergency committee, has called for more government action to stem won strength, telling a party meeting on Friday that “if the dollar-won rate falls below 1,000 our exporters will be bashed.”

The won declined 0.5 percent to 1,099.72 per dollar as of the 3:30 p.m. close in Seoul on Thursday, after weakening as much as 0.8 percent following the BOK decision.

Vice Finance Minister Choi Sang Mok said on Wednesday the government will take necessary measures if excessive herd behavior is seen in the foreign-exchange market. A ministry official, who asked not to be named, said in a phone interview this week that the stronger won has “impacts” on exporters, but the pace of gains have slowed this month. The ministry will monitor flows and “take stabilization measures” if there are excessive moves, he added.

“A stronger won can hurt profitability of exporters, but that doesn’t mean companies will have a problem selling their goods overseas,” said Kim Byung Yoo, director of analysis and forecasting at the Korea International Trade Association. “It is the unpredictable big swings and volatility that can deal blows to companies as they could be unprepared.”

Despite the currency moves, Samsung Electronics Co. posted a forecast-beating set of earnings thanks to brisk demand for its smartphones, sending its shares higher. That only boosted overseas fund inflow to the Kospi, helping lift the won. Samsung said during its second-quarter earnings call that the won had about a 300 billion won negative impact on operating profit, equivalent to about 1.1 percent of the 2015 total. Hyundai Motor earnings also beat estimates.

China Rivals

“Companies like Samsung, which have a strong position in the market, are better prepared to weather the challenging environment,” said Lee Seung Woo, an analyst at IBK Investment & Securities in Seoul. The currency’s climb against the yuan will be more painful to weaker players like LG Electronics as Chinese brands like Oppo, Vivo and Haier emerge as competitors in handsets and home appliances, according to Lee.

“Given that Korea is competing more against China in the export market, the renminbi’s weakness this year is causing Korean exporters to lose competitiveness,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore.

‘Real Possibility’

The won reached its strongest level against the U.S. dollar since May 2015 on Wednesday as demand for the greenback weakened, with odds for a Federal Reserve rate increase by year-end remaining below 50 percent in the futures market. With the Fed unlikely to raise, a compelling factor stemming won gains is on hold, according to Kim Dae Hun, a currency trader at Busan Bank in Seoul.

“Looking at charts, the won strengthening beyond 1,000 per dollar is a real possibility,” said Kim. The trader pointed to Elliott wave analysis of the won, which indicates that once it breaks 1,081, the next resistance level is 1,027.5. Once that level is breached, the currency will trade below 1,000 until the next level of 929.85.

Demand for Korean assets from bonds to stocks is expected to get a further boost after S&P Global Ratings raised the nation’s long-term debt rating by one level on Monday.

“The pace of the won’s rally will depend on the degree of government intervention,” said Ha Keon Hyeong, an economist at Shinhan Investment Corp. in Seoul. “Sustainability of the rally will depend on the policy direction and economic data from the U.S.”

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