The strong Korean won could pose a setback to recovering exports as the U.S. dollar is expected to weaken further once U.S. president-elect Joe Biden carries out his campaign promises including fiscal stimulus and return to global trade agreements.
[Graphics by Song Ji-yoon]
The U.S. dollar, which has been rapidly losing ground against the Chinese yuan and other currencies after Biden declared victory, reversed the trend after the Monday announcement by Pfizer and BioNTech that their Covid-19 vaccine proved more than 90 percent effective in late-stage clinical trials.
The Korean won was trading lower at 1,115.10 Tuesday after closing the previous session at 1,113.9, its highest since February 2019.
Most analysts do not believe the vaccine breakthrough alone can sustain the greenback as investors are betting that it would weaken to 1,000 levels last reached in 2018 due to myriad downside pressures on the dollar.
Biden has vowed record fiscal spending, which would further widen the fiscal deficit and hurt the dollar value. He has also pledged commitment to global trade accords, which could ease protectionism. The removal of uncertainties from the U.S. election has brought foreign investors back to the local stock market in droves.
Auto and shipbuilding industries will bear the biggest burn from the weakened dollar. ??? ??
Korea’s top two automakers, Hyundai Motor Co. and its sibling Kia Motors Corp., which pull in 80 percent of their sales from overseas markets, are estimated to post a 200 billion won ($179 million) revenue drop for every 10 won rise per U.S. dollar. This is because U.S.-bound shipments make up more than 30 percent of their total exports, with most of the transactions done in the greenback.
Hyundai Motor reported a 319 billion won decline in revenue, and Kia Motors a 15 billion won dent in its bottom line in the third quarter on the strengthening won.
“We’re seeking to reduce our dependency on the dollar while increasing our basket of Euro and other currencies,” said a Hyundai Motor official. “We’re also stepping up our localization efforts by expanding our output at offshore production sites.”
For foreign-owned automakers based in Korea including GM Korea Co., Renault Samsung Motors Co. and SsangYong Motor Co., the rising currency is a growing concern that comes on top of labor protests and liquidity issues.
GM Korea ships seven of 10 vehicles produced in Korea to the U.S. and Canada. Renault Samsung and SsangYong also generate more than 15 percent of their sales from exports.
The local shipbuilding industry, which has suffered from a drought of orders in recent years, is also on the edge. The same goes for oil refiners, which do most of their business in the dollar.
Some experts say the rise of trade protectionism and tougher regulations at home are likely to push more Korean companies overseas.
By Park Yun-gu, Park Jae-young, Choi Keun-do and Kim Hyo-jin
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