Trump's return would fuel volatility for Korea

Revival of Trump's “America First” economic policies would drag Korean stocks down, weaken won, says expert

Kim Sang-hoon, head of research at KB Securities speaks at a press conference held at the Korea Exchange in Yeouido, western Seoul, Tuesday. (Im Eun-byel/The Korea Herald)

South Korea’s financial market would likely face higher volatility if former US President Donald Trump were to return to the White House, as he would trigger another push for deglobalization, local brokerage house KB Securities’ research chief said Tuesday.

“If Trump wins the upcoming presidential election, volatility in the Korean economy and financial market is likely to escalate, along with the potential acceleration of deglobalization,” Kim Sang-hoon, head of research at KB Securities said at a press event held at the Korea Exchange in Yeouido, western Seoul, Tuesday.

Kim noted that "volatility" was one of the most defining characteristics of Trump's policies during his first term between 2017 and 2020.

“Market volatility was at its highest during Trump’s term,” he said, citing how Trump challenged the US Federal Reserve’s independence and intervened in the currency market during his term.

"Volatility, of course, sometimes leads to lucrative opportunities but we need to be prepared for it," he said.

Kim further projected Trump’s return to the post would likely signal a slowdown in the Korean stock market.

“When Trump was in office, the US-China trade conflict intensified, which led to a relative slump in the Korean and Chinese stock markets," Kim said.

In 2018, the Korean benchmark Kospi reached as high as over 2,600 points but later plunged to 1,850s in the following year as the US-China rivalry intensified.

“Kospi suffered larger losses than Beijing’s as it is a proxy of the global trade volume. One-third of the Korean economy relies on exports -- with its largest and second-largest trade partners being China and the US, respectively, at the time. The market consensus was that Korea was unlikely to perform well when its top two partners are in a fight," he added.

“Even the Korean won weakened against the dollar as it serves as a proxy to the Chinese yuan. Also, the won's volatility worsened with higher geopolitical risks," Kim said.

While the Korean stock market has been showing signs of recovery in recent days, Kim projected the market will slow down if Trump is reelected in November.

The Kospi closed at 2,867.38 points Tuesday, up 9.62 points or 0.34 percent from the previous day. Earlier in the day, it hit a 2024 high of 2,875.37 points, marking an over 200-point rise from the closing of 2,669.81 on Jan. 2.

“Korea is likely to face a similar situation to what happened under Trump’s first term if he wins the election. But one major variable could be the Value-up (Program),” he said, referring to the government’s Corporate Value-up Program, which aims to boost the market value of listed companies here.

Kim viewed that the reelection of US President Joe Biden would result in less volatility for the Korean stock market, but the slump would be unavoidable as the world economy shifts toward deglobalization.

“The volatility would be less when compared with Trump,” he said. “But even the Biden administration has raised tariffs on Chinese imports to win the approval rating ahead of the election,” he said. “This could temporarily work in favor of some Korean companies competing with China, but in the long-term, it is not good news for the country.”

“Korea is one of the countries that benefited hugely from globalization, but those times have come to an end,” Kim stressed.

By Im Eun-byel(silverstar@heraldcorp.com)