South Korean Stock Markets Face Decline Amid U.S.-China Trade Tensions
South Korean stock markets experienced a decline on the 13th, as concerns over a renewed U.S.-China trade dispute weighed heavily on investor sentiment. The KOSPI, which is the country’s main stock index, fell by 0.72% from the previous trading day, closing at 3,584.55. During the early session, the index saw its losses widen to as low as 3,522 before recovering slightly. Major companies like Samsung Electronics and SK Hynix also saw their shares drop, though they managed to reduce their losses by about 1-2 percentage points from their early-session lows.
The KOSDAQ index, which tracks smaller and technology-focused companies, started the day 1.6% lower at 845.76 but ended up 0.12% higher at 860.49. This mixed performance highlights the uncertainty in the market amid ongoing geopolitical tensions.
Impact of U.S.-China Trade Dispute
The decline in the KOSPI was largely attributed to resurging U.S.-China trade tensions, which had already caused a sharp drop in the three major U.S. stock indices on the 10th (local time). On that day, U.S. President Donald Trump announced that starting November 1, an additional 100% tariff would be imposed on existing tariffs on Chinese imports. This move came in response to Beijing’s tightened export controls on rare earths. As a result, the Dow Jones Industrial Average fell 1.9%, while the S&P 500 and Nasdaq Composite indices plummeted 2.71% and 3.56%, respectively.
Analysts have raised concerns about the potential for a “Black Monday” in South Korean markets, drawing parallels to April when Trump’s executive order on tariffs led to a significant stock market crash. On April 2, Trump declared the day as “U.S. Liberation Day” and issued an executive order imposing reciprocal tariffs on countries applying unfair trade barriers to the U.S. The following weekend saw senior Trump administration officials making hawkish remarks, leading to a 5.57% plunge in the KOSPI on April 7 alone.
Signs of De-escalation
However, there were signs of de-escalation over the weekend. China, through a spokesperson for the Ministry of Commerce, stated, “We are not afraid, but we do not seek a fight.” Meanwhile, President Trump wrote on his social media platform, “Respected Chinese President Xi Jinping is merely experiencing a temporary difficult moment,” adding, “The U.S. wants to help China,” signaling a step back from the aggressive stance.
Experts believe that the financial market impact of the U.S.-China trade dispute may be limited. Choi Seol-hwa, a researcher at Meritz Securities, noted that the likelihood of a 100% tariff being actually imposed is low. She explained that both countries have already gone through a “tariff chicken game” between April and May, and that high tariffs bring more disadvantages than advantages for both the U.S. and China. According to her, these tariffs are primarily pressure tools for negotiations.
Exchange Rate Volatility
The exchange rate remains a variable factor in the market. A rising exchange rate, or a weakening won, could influence foreign investors’ net buying momentum. Lee Kyung-min, a researcher at Daishin Securities, mentioned that in past periods of expanding pressure on the weak won, foreign investors’ net buying led to profit-taking sentiment alongside a shift to a strong won. However, he added that it is difficult to predict the timing of a dollar weakness and won strength transition due to ongoing U.S.-South Korea trade negotiations and the Liberal Democratic Party leadership election in Japan.
On the day in question, the won-dollar exchange rate opened at 1,430 Korean won, up 9 won from the previous trading day, but later reduced its gains and closed at 1,425.8 Korean won as of 3:30 p.m. This fluctuation underscores the sensitivity of the currency market to external factors.