Eurozone ratings downgrades add to exporters’ worries


Exporters and investors are bracing for a fresh wave of turbulence reignited by Standard & Poor’s downgrade of half of the eurozone nations on Friday.

The automotive, shipbuilding and electronics industries expressed renewed concern for a recession in Europe and elsewhere from the mass credit rating cuts. Government officials downplayed the effect at home, but analysts agree that stocks and the won will slide in the coming weeks.

“Demand is relatively weak in Europe, but business conditions could worsen further and challenge Korean businesses operating in the region,” said Kwon Young-dae, head of market analysis at the Korea International Trade Association.

“The issue is rather a political one involving major elections and the action (credit cut) could complicate the region’s leadership to enforce fiscal restructuring,” he said.

S&P on Friday stripped France of its top “AAA” rating and dropped the sovereign rating of seven other countries, complicating Europe’s efforts, led by France and Germany, to solve their debt crisis. Investors around the world need to reassess the region’s firepower to force their cash-strapped member nations to increase austerity measures.

Hyundai Motor Group said a negative impact to a certain extent would be “unavoidable” should the rating cut lead to further slowdowns in consumer spending in the region.

“Quality control will stay as our top priority, especially when demand retracts,” a group official said.

Samsung Electronics Co., which makes 30 percent of its profit from Europe, said it is seeking fresh strategies to tackle slowing demand in the region.

“We need to put a bigger emphasis on the long-term effect of the European debt crisis than temporary sales decline. It is a major market and we will map out new strategies to minimize the impact,” a Samsung Electronics official was quoted as saying.

Analysts expect stocks to slide this week and remain volatile as the KOSPI usually does in the aftermath of heightened external risks.

“This significantly raises the possibility of a foreign investment exodus, which led the recent growth in the stock market. A shock in the market will be inevitable, especially if European funds begin to leave the market,” said Hong Soon-pyo, an analyst from Daishin Securities Co. The country’s experience through the Asian financial crisis of 1997-8 and the recession of 2008 have shown that the sudden withdrawal of foreign funds from stocks and bonds weakens the won against major trading currencies and raises insolvency risks in the banking sector.

The Finance Ministry said the impact from the credit rating cut will be minimal since the action was expected to come for some time already.

“We have a contingency plan in place to respond to external shocks. We’re carrying out intense monitoring of the market to see if any intervention is necessary,” a ministry official said.

Vice Finance Minister Shin Je-yoon on Jan. 4 said the ministry is considering fresh measures to prevent sudden capital flight.

By Cynthia J. Kim
(cynthiak@heraldcorp.com)