Appreciation of the Yuan Brings Positive Momentum to the KOSPI

[Image source=Yonhap News]

[Asia Economy Reporter Junho Hwang] Recently, there has been a forecast that the appreciation trend of the Chinese yuan (貨) will have a positive impact on the Korean stock market.

Samsung Securities stated on the 29th that the correlation between the yuan and the KOSPI over the past three years was 0.74 points. The correlation between the yuan exchange rate and the won exchange rate is 0.88 points. This indicates that the yuan exchange rate and the Korean market have a close relationship. However, on the 28th, the People's Bank of China, the central bank of China, announced the yuan's dollar-based reference exchange rate (mid-rate) at 6.3858 yuan, down 0.27% from the previous trading day. This is the first time since June 2018, three years ago, that it has fallen to the 6.3 yuan level.

Samsung Securities explained that the recent strength of the yuan can be understood as a result of increased global demand and the consequent improvement in China's current account balance, considering China's economic structure focused on final goods production. They also viewed factors such as the weakening of the dollar, the possibility of export expansion due to economic recovery, and the inflow of foreign capital into the mainland as influencing factors. They analyzed that the stance of the Chinese monetary authorities has shifted from a focus on managed floating to following market mechanisms, and that they are securing stable purchasing power through currency appreciation amid rising commodity prices. In particular, with the first US-China trade representative meeting since the inauguration of US President Joe Biden's administration, it is expected that the discount on the yuan caused by US-China conflicts may also dissipate.

Seojeonghoon, a researcher at Samsung Securities Research Center, explained, "Domestic companies that cover a significant portion of their performance through various intermediate goods exports to China are sensitive to the movements of the yuan," adding, "The recent movements of the yuan and the improvement in domestic companies' earnings estimates share the same context." He continued, "The appreciation trend of the yuan can once again stimulate the positive sentiment of the domestic stock market."

Samsung Securities also forecast that when establishing sector strategies for the domestic stock market, export-type cyclical stocks that can respond sensitively to yuan appreciation should be placed at the center. Attention is needed for sectors such as energy, chemicals, steel, and transportation, and Chinese consumer-related stocks could also be approached from a trading perspective. As interest in China grows again, if foreign investors' return is anticipated, it is also positive to increase the overweight ratio of automobile and semiconductor-related stocks, which foreign investors had previously sold off.

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