Chung Seul-gi and Cho Jeehyun
South Korean markets were lifted Monday upon the weekend agreement by Washington and Beijing on a truce over their trade war, easing some jitters over the country’s economic prospects that hinge highly on shipments to the world’s two biggest markets.
The main Kospi finished Monday 1.67 percent higher at 2,131.93 and the secondary Kosdaq up 1.97 percent at 709.46. The Korean currency closed up 10.5 won at 1,110.7 against the U.S dollar.
The Seoul markets hungry for positive news gained an upward momentum that may last if the 90-day moratorium stays put and bring normality on the trade front, analysts said.
U.S President Donald Trump and Chinese President Xi Jinping on the sidelines of a G-20 summit in Argentina on Saturday agreed to hold off on additional tariffs on shipments that were supposed to be imposed on Jan. 1, 2019. The U.S will “leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time," the White House said in a statement.
At the same time, China agreed to purchase “not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries,” it said. Both countries also agreed on working to resolve disagreements on technology transfer, intellectual property and agriculture over the next 90 days.
Korea has been vulnerable to the trade war between the U.S. and China, the country’s two major trading partners. Intermediate goods make up 80 percent of Korea’s exports to China so that a higher trade barrier for China’s exports to the U.S would pose a big risk to the export-reliant Korean economy.
“The mood could have reversed if the peace agreement had been more lasting. A temporary relief could add to uncertainties,” said Kim Hak-kyun, head of Shinyoung Securities Co.’s research center.
Cho Yong-joon, head of Hana Financial Investment Co.’s research center, also agreed gains will be limited for wait-and-see approach until the U.S and China return to the negotiation table in February. “The worst at least may have been avoided.”
Whether foreign investors will return to buying position remains unclear.
Latest news from overseas had been favorable for Korean markets. U.S Federal Reserve Chairman Jerome Powell’s recent comment raised expectations that rate increases in 2019 may be fewer than expected.
But without fundamental improvement on the domestic front and Korean Inc., Korean markets will likely stay subdued, said analysts.