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Korean firms cautious over Fed hike

In contrast to the central bank’s upbeat forecast of the U.S. rate hike on the Korean economy, the business circles here remained cautious on Thursday, devising ways to minimize the impact in the mid and long term.

(Yonhap)
(Yonhap)


The impact of the U.S. Fed hike -- the first in nearly a decade -- will not be felt right away, market watchers said, as the South Korean central bank is keeping its key interest rate at a record low level.

However, many Korean companies are concerned about its global impact, which could affect their exports. The world’s sixth-largest exporter relies heavily on overseas shipments for its economic growth.

Despite uncertainty, Korean carmakers are expected to benefit from the Fed’s move as the U.S. dollar is likely to strengthen.

“Expectations are high that the U.S. dollar will get even stronger due to the hike. This will have positive impact on local carmakers whose large section of exports is in the greenback,” an industry watcher said.

For decades, the Federal Reserve’s near-zero rate policies supported U.S. car sales. The monetary tightening, however, could chill the market as consumers may feel reluctant to pay more on their monthly installments.

Feyman Chun, an analyst at Daishin Securities, also pointed out that U.S. car sales may shrink in the first quarter of next year, as many consumers made purchases before the rate hike to best enjoy the benefits from the record-low interest policy.

Local carmakers targeting emerging markets, however, are expected to struggle, due to escalating instability of the financial market there, as well as slowing economies.

Prospects remain dim for shipbuilding companies already experiencing massive losses in recent years. If the U.S. rate hike pulls down oil prices further, they will face a continuous decline in offshore plant orders, Chun said, adding that the industry has already hit bottom.

Construction companies, meanwhile, expect no immediate impact, but said they are concerned over its possible role in weakening consumer sentiment.

“It will have limited impact for now. But if it affects the Bank of Korea’s decision to raise its key interest rates, it would aggravate the financing condition and also weaken consumers’ interests in purchasing new homes,” said an official at a local construction company.

The steel industry also remained cautious, as the weakening property market around the world -- due to higher interest rates -- would trigger a further decline in demand for steel. What Korean steelmakers fear more is the growing competitiveness of Chinese companies expanding exports taking advantage of the yuan’s devaluation, an industry watcher said.

IT industry insiders said they were carefully watching the impact of the Fed hike on emerging markets and possible exchange rate fluctuations. Air carriers and shipping companies are expected to suffer as they operate flights and vessels purchased with funds borrowed in foreign currencies.

By Cho Chung-un (christory@heraldcorp.com)

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