South Korean Won Might Be The Most Affected Currency By The U.S-China Trade War

South Korean Won Might Be The Most Affected Currency By The U.S-China Trade War - South Korean Flag
Bill Cascade   NEW 14/06/2019 00:00:00 Forex

South Korea is one of the Asian countries that are feeling the effects of the ongoing trade war between China and the U.S. The impact is particularly evident on the Asian country's currency, the Won, which has been pinned down to a two-year low.

The Won is considered the most risk-sensitive currency in Asia. Its performance has been put to the test this year, especially due to the disrupted global manufacturing industry courtesy of the ongoing trade tensions. Investors have been using the Won as a substitute to bet on the impact of the prolonged U.S-China trade war.

Won suffers a major setback

The South Korean currency has so far dropped by 6% against the US dollar since the start of 2019. It has so far performed worse than most of the other currencies in Asia. This poor performance was influenced not only by the volatile global trade but also the growing concerns that the Bank of Korea will slash interest rates to maintain a stable economy.

USD/SKW Forex Chart

Source

The long-standing trade friction between China and the U.S. loosened the Won’s grip, causing it to slide to its lowest point in two years. The price of the South Korean currency dropped to around 1,200 per dollar, a level that it has not seen since January 2017.

"The won is like a proxy currency to not only global growth sentiment but one that's also related to U.S.-China trade talks," stated Park Sang-Hyun, the lead economist at Seoul-based Hi Investment & Securities.

Tariff concerns loom amid trade deal uncertainties

Sang-Hyun also believes that maintaining the Won in the 1,250 level against the dollar might be a daunting task, especially as the trade standoff between China and the U.S. intensifies. The U.S. might end up imposing stricter tariffs against China.

Meanwhile, the two countries continue to hold talks in the hopes of finding a suitable middle ground. President Donald Trump recently noted that he expects to interact with China’s President Xi Jinping at an upcoming G20 summit. The event will be held this month in Osaka, but it is not clear whether the two heads of state will in engage in further negotiations.

May turned out to be a rough month as negotiations failed to yield expected results. The trade standoff has so far softened global demand making this year quite unappealing for trade. The last time the trade landscape suffered such a hit was a decade ago during the financial crisis.

South Korea’s semiconductor industry feels the head of the slowed demand

The South Korean Won is easily used for trading because of its liquidity, and this means it is closely tied to the supply chain.

Analysts and market expert expect the semiconductor industry in South Korea to be among the most affected industries. The semiconductor industry represents the largest export segment in South Korea.

Chinese tech firm Huawei is one of the major customers that source semiconductor products from South Korea. The company was caught up in the China-U.S. trade wars after President Trump announced a ban that would prevent Huawei from doing business in the U.S.

Investors have also been shying off from  South Korean stocks which have been experiencing a sell-off on the weight of the unappealing market conditions.

 

 

 

 

 

 

 

 

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