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Samsung Electronics: A Sudden Shift!

Update time : 2024-11-16 11:48:23

During the trading session on November 15th, South Korea's Composite Stock Price Index (KOSPI) once dropped by more than 1%. However, later, driven by chip stocks like Samsung Electronics, the KOSPI fluctuated and turned positive. By the close of trading, the KOSPI index had risen slightly by 0.09%, with Samsung Electronics surging by 7.21%, marking its biggest single-day gain since March 24th, 2020. So, what led to this sudden rally in Samsung Electronics' stock price?

In the previous four trading days, the KOSPI index had accumulated a decline of 5.56%. Both Samsung Electronics and SK Hynix saw their share prices fall by more than 13%. Analysts pointed out that Donald Trump's victory in the election had driven the strengthening of the US dollar and a sharp increase in US Treasury bond yields, exerting downward pressure on the South Korean stock market. Moreover, if Trump were to raise tariffs on trading partners, South Korea's export-driven economy might shrink.

The latest news showed that Citigroup downgraded South Korean stocks from a "Neutral" rating to an "Underweight" rating. Additionally, a report released by the US Treasury Department on Thursday local time revealed that the US had once again placed South Korea on the list of currency manipulation watchlist.

The Rally in Samsung Electronics' Share Price
On Friday, Samsung Electronics' share price suddenly soared, with the increase once exceeding 8%. On the news front, Samsung Electronics announced that it had reached a preliminary agreement with the main labor union in South Korea to raise wages by 5.1%. Samsung Electronics stated that union members would start voting on the agreement for a week starting from the 14th, which includes more holidays, bonus points that can be used to purchase Samsung Electronics products, and other benefits. It is understood that the union has 36,500 members, accounting for approximately 30% of Samsung Electronics' total workforce in South Korea. The union went on strike in July, but the company said that the strike did not lead to any production disruptions.

Furthermore, recently, some South Korean media reported that Samsung has initiated the development of HBM4 and might provide customized HBM4 memory for Meta and Microsoft, the two AI cloud service giants, to integrate into their next-generation AI solutions. This also marks that Samsung's HBM4 process will be adopted by mainstream customers for the first time.

In addition, there is also news that to strengthen the competitiveness of the semiconductor industry, South Korea's ruling party, the People Power Party, plans to submit the "Semiconductor Special Law" to the South Korean National Assembly, implementing support measures such as government subsidies for the semiconductor industry. With the upcoming second term of US President Donald Trump, uncertainties in the global industry and trade fields are increasing. The People Power Party plans to accelerate the legislative process of laws related to supporting South Korean enterprises, such as the "Semiconductor Special Law".

In the capital market, South Korea's stock market has been in a slump this week. From Monday to Wednesday, the South Korea's Composite Stock Price Index (KOSPI) fell by 1.15%, 1.94%, and 2.64% respectively, and rose slightly by 0.07% on Thursday. Looking at individual stocks, during the first four trading days of this week, South Korea's chip stocks suffered significant declines. Samsung Electronics' cumulative decline exceeded 12%, and SK Hynix's decline exceeded 13%.

Experts generally believe that this is mainly due to market concerns about the trade protectionism of the Trump administration, and such uncertainties are likely to persist for some time in the future. The market predicts that Trump is likely to build tariff barriers and adopt tax reduction policies, which will drive the strengthening of the US dollar. Coupled with the strong momentum in the virtual currency market like Bitcoin, foreign capital has been flowing out of the South Korean stock market.

Analysts pointed out that with the US Republican Party securing a majority in both the House of Representatives and the Senate, leading to increased policy uncertainties, the downturn in the South Korean stock market may become a long-term phenomenon. Kim Young-hwan, a researcher at NH Investment & Securities, analyzed that it would be difficult to find an opportunity for the stock market to rebound in the near future. At least, we have to wait until the new US government is established and presents its specific policies.

Recently, the US dollar has been climbing as doubts have been growing about how low the Federal Reserve will cut the benchmark interest rate next year. The Trump administration's expectation of accelerating inflation (partly due to tariff hikes) has further boosted the dollar's rise this month. This appreciation has put significant pressure on net importers of dollar-denominated commodities like oil and countries with dollar-denominated debts.

Donald Trump's victory in the election drove the strengthening of the US dollar and a sharp increase in US Treasury bond yields, exerting downward pressure on the South Korean stock market. Besides, South Korea's economy is export-driven and heavily relies on exports. If Trump were to raise tariffs on trading partners, South Korea's economy would be significantly affected. Recently, the Korea Institute for International Economic Policy released a research report stating that if Trump fulfills his promise to impose the highest level of universal tariffs, South Korea's GDP will shrink by approximately 0.67% next year, and exports will decrease by $44.8 billion.

South Korea Placed on the US Currency Manipulation Watchlist
On November 14th local time, the US Treasury Department released the Report on Foreign Exchange Rate Policies for the Second Half of 2024, putting South Korea on the list of currency manipulation watchlist. The list still includes Japan and Germany. The report covered the four quarters ending in June 2024.

In the report, the US Treasury Department also concluded that "none of the major US trading partners manipulated the exchange rate between their own currencies and the US dollar to prevent effective balance of payments adjustments or gain an unfair competitive advantage in international trade."

South Korea has been included in the watchlist 14 times in a row since April 2016. It was removed from the list in November last year after more than seven years, and was also excluded in the first half of this year, but was put back on the list again in the second half of this year.

The US has three criteria for designating currency manipulation watchlist objects: a trade surplus with the US of more than $15 billion; a current account surplus accounting for more than 3% of the country's gross domestic product (GDP); and net purchases of US dollars for at least eight months in the most recent 12 months, with the scale accounting for more than 2% of GDP. As long as a country meets two of these conditions, it will be listed as a watchlist object.

This time, South Korea's trade surplus with the US and current account surplus exceeded the standards, so it was included in the watchlist. The US Treasury Department stated that as of the end of June 2024, South Korea's current account surplus accounted for 3.7% of its GDP. The trade surplus with the US increased from $38 billion in the previous year to $500 billion this year.

Recently, after the won-dollar exchange rate broke through the 1,400 won mark, the South Korean government took "verbal intervention" measures on the 14th. Choi Sang-mook, South Korea's Deputy Prime Minister and Minister of Economy and Finance, said when presiding over a macroeconomic and financial meeting at the Bankers Club in Seoul on that day that currently, the policy tone of the new US government, as well as the global economic growth, price trends, and the monetary policy tone of major countries are full of uncertainties. The South Korean government will pay close attention to market dynamics through a 24-hour joint monitoring mechanism and respond promptly to possible fluctuations.

Choi Sang-mook pointed out that if fluctuations in the financial and foreign exchange markets are too severe, relevant departments should take timely and active market stabilization measures. This is the first time in seven months that South Korea's foreign exchange department has conducted verbal intervention in the foreign exchange market. In mid-April, affected by factors such as the tense situation in the Middle East, the foreign exchange market experienced severe fluctuations and the won-dollar exchange rate dropped significantly. At that time, the South Korean government immediately stepped in to conduct verbal intervention.

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