It's time now for a look at the global markets this afternoon, and for that I'm joined on the line by Dr. Hwang Seiwoon, research fellow at the Korea Capital Market Institute.
Dr. Hwang, thanks for coming on today.
Stocks in New York overnight recovered somewhat, the Nasdaq especially, on news that the Trump administration would give American companies some time to deal with the blacklisting of Huawei. What's happening there and in other markets?
U.S. Stocks closed higher Tuesday on news that the U.S. temporarily eased restrictions on Chinese telecom giant Huawei. The Dow ended 0.77 percent higher as Intel outperformed. The S&P 500 gained 0.85%, with the tech sector jumping 1.2%. The Nasdaq advanced nearly 1.1%.
Asian stocks were on shaky ground on Wednesday, as earlier relief over Washington’s temporary relaxation of curbs against China’s Huawei Technologies failed to offset deeper worries about trade frictions between the world’s two largest economies.
The Chinese markets, which have endured a volatile few months, started off on a cautious note. The Shanghai Composite Index was down 0.01 percent. Japan’s Nikkei edged up 0.23 percent. South Korea’s KOSPI rose 0.35 percent, while KOSDAQ composite advanced 0.65 percent.
The Chinese currency is weakening with these trade tensions, and it's closing in on 7 yuan to the dollar, a low not seen since 2008. The Chinese financial authorities are saying they're going to do something, but it's continued to fall this week. What does this mean for the Korean currency?
The yuan has weakened almost 3 percent this month after the United States hiked tariffs on Chinese goods. The Chinese central bank said last week it will ensure that the currency does not breach the 7 per dollar level in the immediate term.
The yuan’s recent slide risks re-igniting one of U.S. President Donald Trump’s favorite criticisms of China: that Beijing weakens its currency to aid exporters. While analysts say the exchange rate is being driven by souring market sentiment as China’s economy slows and the U.S. ramps up tariffs, the slide towards 7 against the dollar comes during crunch trade negotiations.
The decline in the value of the yuan is likely to lead to a depreciation of Korean won. As China accounts for one-quarter of Korea's total exports, the depreciation of the yuan may soon give deep impact on the value of the Korean won.
The OECD has lowered its growth forecast for the Korean economy yet again from 2.6 down to 2.4 percent for this year. Why is that and what's the prognosis for this weakness in GDP growth?
OECD said in its latest economic outlook over Korea that the Korean economy shows signs of sluggishness as export fell amid slowing growth in domestic demand. Asia's fourth-largest economy expanded 2.7 percent in 2018, down from a solid 3.1 percent the previous year.
The escalating trade frictions between the United States and China would have a negative effect on the South Korean economy. The U.S. and China account for a combined 40 percent of South Korea's exports. South Korea's exports fell 2 percent on-year to US$49 billion in April, extending their on-year decline for the fifth consecutive month due to a protracted slump in chips and weak demand from China.
The government needs to seek an expansionary fiscal and monetary policy to secure economic stability by preemptively responding to weak demand at home and abroad.
Alright, Dr. Hwang. We'll have to leave it there. Thanks so much for coming on today.