Korean Corporations on the Watch as Crimea Gets Annexed by Russia

Korean companies doing business in Russia are keeping a close eye on the local political situation, with the Russian annexation of the Autonomous Republic of Crimea on the horizon. The US and the EU have warned that they could resort to freezing assets, investment restrictions, and the like depending on the voting results. Under the circumstances, the investment environment is forecast to be significantly exacerbated there. 

The trade volume between Korea and Russia is on the rise these days, and Korean companies are also increasing their investment in the latter. Experts point out that they need to provide against the potential losses that could follow a deterioration of regional conditions. 

In particular, Korean electronics manufacturers are wary of a decline in domestic consumption. Samsung Electronics, which is the largest TV supplier in Russia, is currently fostering its TV manufacturing plant in Kaluga as its production base covering the CIS region. The company has invested US$228 million in the facilities. “We are watching the situation very closely for now,” says the company. 

In the meantime, LG Electronics has run the first Korean electronics manufacturing plant in Russia in Ruza since September 2006. The audio components, cleaners, air conditioners, monitors, and microwave ovens produced there are highly popular with Russian consumers nowadays. This means that any shrinkage in the Russian economy could result in substantial losses on the part of LG. 

The Hyundai Motor Group has run a plant in Saint Petersburg since 2011, too. “The combined local production ratio of Hyundai and Kia is over 50 percent, and thus we are quite resistant to foreign exchange conditions, while the amount of annual exports to the Ukraine is limited to 7,000 to 8,000 units,” the company explained, adding, “However, we will make thorough preparations to better cope with the fast-changing market situations.”

The Korean stock market is also showing bearish movement, as the conflict between Russia and the G7 countries surrounding the annexation of Crimea is heating up alongside China’s economic indices being below expectations. The global stock market is moving in the same direction.  According to fund data provider KG Zeroin, the average rate of return of local equity funds fell 2.21 percent from the previous week as of the morning of March 14. The Korean Composite Stock Price Index (KOSPI) dropped 2.09 percent and the Korea Securities Dealers Automated Quotations (KOSDAQ) lost 1.33 percent during the same period. 

The equity funds investing in Russia and emerging European countries plummeted for two weeks in a row due to the political uncertainties in Ukraine. Specifically, they lost 4.26 percent in the past week alone. The equity funds for emerging economies as a whole recorded a rate of return of negative 2.56 percent, too.