"Wuhan Pneumonia Spread Hits Korean Won and Chinese Yuan the Hardest"

"SARS Outbreak Also Triggered Won Selling Phenomenon"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] An analysis has emerged suggesting that the South Korean won could suffer the greatest impact if the novel coronavirus causing 'Wuhan pneumonia' spreads. This projection is based on the observation that the won experienced selling pressure during the outbreak of SARS (Severe Acute Respiratory Syndrome) in the past.

On the 23rd, Nomura Securities stated in a report, "If the environment is similar to that of SARS, selling pressure could particularly appear in the South Korean won and the Chinese yuan," adding, "If the infection trend spreads further, it could also affect the Singapore dollar and the Thai baht."

According to Nomura, Asian currencies were especially hit when the SARS infection rate peaked in 2003. The South Korean won rose to 1,163.99 won per dollar, and the Singapore dollar traded at 1.3497 Singapore dollars against the US dollar.

On the same day, the won-dollar exchange rate opened at 1,167.0 won, up 2.4 won from the previous day in the Seoul foreign exchange market.

If the virus spreads, growth downside pressure is expected to increase due to slowdowns in the airline, hotel, and tourism sectors. Countries heavily dependent on Chinese tourists, such as Hong Kong, Thailand, and Taiwan, are expected to be mainly affected. However, South Korea could also be impacted. Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said at a briefing following the domestic gross domestic product (GDP) announcement the previous day, "Since Wuhan pneumonia is in its early stages, it is not possible to predict its impact on growth rates or how far it will spread," adding, "During the MERS outbreak, outdoor activities were avoided and consumption contracted."

Global investment banks (IBs) and institutions point out that the key issue is how high the mortality rate from Wuhan pneumonia will be. So far, the damage is generally expected to be less than that of SARS, but the mortality rate has not yet been clearly established. The rapid daily increase in the number of infected and deceased individuals also makes it difficult for IBs to predict the economic impact.

Goldman Sachs noted, "Confirmed and suspected cases have recently surged, and uncertainty is increasing due to large-scale movement during the Lunar New Year," while Nomura also pointed out, "There is a possibility that the current mortality rate is underestimated." However, UBS, Bank of America (BOA) Merrill Lynch, and others still expect the mortality rate to be around 2%, much lower than SARS, and believe that control over the disease has improved, thus anticipating a swift response from the Chinese government.

There is also a view that even if Wuhan pneumonia spreads, its impact on financial markets will be limited. JP Morgan and Marketfield stated, "If the transmission is limited and deaths do not increase significantly after the Lunar New Year, the impact will be limited." They also predicted that financial markets are more likely to focus on positive factors such as semiconductor industry conditions and economic improvements.

The Korea Institute of Finance commented, "For the time being, Wuhan pneumonia will act as a source of financial market instability, but considering that the economic and financial market impacts of SARS and MERS since the 2000s were short-lived, excessive concern should be avoided." However, they added, "Since negative effects on Asia could increase depending on future spread and virus mutation, it is necessary to closely monitor developments after the Lunar New Year."

This content was produced with the assistance of AI translation services.