Analysts at Nomura said in a report on Friday (August 18) that the Korean won’s exchange rate seems to be the result of the geopolitical situation on the Korean peninsula – maintaining the status quo, developing better or worsening. They will continue to shroud under the clouds.
★The relatively calm fabric of the Korean Peninsula will not last
It FX678 reported that North Korea's military had previously threatened to attack US military bases in the Pacific 601 099, attending regional shares Guam, the US president and the president of the Trump North Korea had strong words "mouth artillery bombardment." After that, the tension caused by North Korea’s development of the nuclear missile program finally cooled down last week (August 14-August 20).
However, North Korean leader Kim Jong Un announced last week that he decided not to use missiles to hit Guam. But warned that if the United States continues to take extremely dangerous and reckless behavior, then he may change his mind.
Analysts at Nomura Securities pointed out that the relatively calm situation on the Korean peninsula may not last long, as South Korea and the United States will hold large-scale military exercises this week. Obviously, this may increase the tension on the Korean peninsula again unless there is a solution. Otherwise, tensions on the Korean peninsula may last for a while, but the situation will not go out of control. However, this is likely to continue to drag the Korean won exchange rate.
★ The geopolitical situation on the Korean Peninsula has put pressure on the Korean economic outlook
Nomura Securities still believes that the Korean economy is bleak. In 2018, the country's domestic economic growth rate is expected to slow down from 2.7% this year to 2.3%.
Nomura Securities expects South Korea's tourism industry to be directly affected by the Korean Peninsula crisis. He also pointed out that in July this year, the number of Chinese tourists to South Korea has dropped by about 68% compared with the same period of last year.
Nomura also said that tensions on the Korean peninsula will have an indirect impact on South Korea's private consumption and construction investment. At the same time, the new policy of the South Korean government aimed at cooling the real estate market may further impact these areas.
★ The geopolitical situation on the Korean Peninsula has put pressure on Korean stocks
Nomura Securities also pointed out that since last year, strong foreign capital has flowed into the Korean stock market. This makes the country's stock market share of foreign shares recorded the highest level since 2007.
The agency said that during the political tension on the Korean peninsula from July 21 to August 16, net foreign-owned shares were sold for $3.3 billion. Moreover, the agency believes that the ongoing geopolitical situation will increase the risk of further liquidation by foreign investors.
★Whether the results of the geopolitical situation on the Korean Peninsula are going on, the won will be under pressure
Nomura Securities believes that the South Korean central bank is unlikely to raise the interest rate of the won by raising interest rates, because the weakening of the won is conducive to the country's merchandise exports.
But Nomura Securities also said that even in better circumstances (that is, the United States negotiated to resolve its tension with North Korea), the agency does not believe that the Korean won exchange rate will perform better.
The agency said in the report that South Korea’s foreign exchange and fiscal policies will be consistent with the basic situation. Because South Korean policymakers will choose to wait before seeing the actual negotiations between the United States and North Korea. And this can take quite a long time.
Nomura Securities expects that under these two possible circumstances, by the end of 2018, the exchange rate of the US dollar against the Korean won will reach 1,140 won.
But when it comes to the worst (ie, when there is a military confrontation between the United States and North Korea), the bank expects that if there are major casualties and damage, the Korean won’s exchange rate may fall in the first few trading days. More than 10%.
At the same time, Nomura Securities expects this to have a "catastrophic" impact on the Korean stock market.
However, Nomura Securities expects the South Korean government to "avoid a war" to avoid a war.
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