The trade dispute between the United States and China is escalating once again, casting a dark shadow over the Asian stock market, including South Korea. South Korea's benchmark Kospi may dip below the 1,900 mark as investor sentiment has quickly cooled off due to the rekindled U.S.-China dispute and an escalating conflict between Korea and Japan.
The S&P 500 in the United States was down 2.59 percent from the previous trading day and the tech-heavy Nasdaq Composite Index dropped 3 percent on Aug. 23 (local time), according to the Bloomberg on Aug. 25. Not only the main stock indexes in France and Germany but also the Euro Stoxx 50 fell more than 1 percent.
One force behind the decline in the global stock market is the reignited trade war between the United States and China. China suddenly announced on Aug. 23 that it would impose additional tariffs on U.S. products. U.S. President Donald Trump hit back by raising tariffs on Chinese products. He also instructed his officials to tell U.S. companies to seek for alternative suppliers for their Chinese vendors immediately.
As a result, stock prices in Asia, including South Korea, are highly likely to plummet. South Korea has been able to avert from dangers of the stock market crash thanks to measures to postpone tariffication, but the Kospi index is forecast to fall below the 1,900 mark with reignition of the U.S.-China trade dispute.
In addition, South Korea also faces its own unstable factor of a geopolitical conflict with Japan. The South Korean military conducted a drill for the defense of the easternmost islets of Dokdo after the announcement of GSOMIA termination with Japan. Accordingly, Japan is highly likely to impose additional export regulations, heralding a strong confrontation between the two countries.
Under the current circumstances in where the only hope is global central banks easing monetary policy, the speech of Federal Reserve (Fed) chairman Jerome Powell at the policy conference in Jackson Hole disappointed the market. He said the United States currently has good economic conditions and it is close to the Fed’s target, while stressing that there are still great risks for economic uncertainty and downward trend.
However, some experts said that the domestic stock market is unlikely to show an additional sharp decline, though it cannot avoid a short-term variability. Seo Jung-hoon, an analyst at Samsung Securities Co., said, “The South Korean stock market has already fallen to the lowest level among global stock markets through several adjustments and it has come close to valuation at the level of the financial crisis. There is a possibility for a short-term collapse but there is a low possibility for a downward trend.” The domestic market is expected to continue to read the international situation until the United States and China resume trade negotiations in Washington in September.