Here's why Korea could withstand the trade war

Its ASEAN-bound FDIs have surpassed China-bound FDIs since 2015.

Despite exports making up 38% of its GDP, South Korea could fare well amidst the US-China trade war, investment bank Natixis senior economist Trinh Nguyen said. The economist noted that the country’s foreign direct investments (FDIs) in the ASEAN has already surpassed its China-bound FDIs since 2015.

“Korean firms will be resilient thanks to already increasingly diversified investment to mitigate risks of China concentration and higher wage costs at home,” Nguyen commented.

In addition, its US-bound FDIs reached US$15b which is much higher compared to Koea’s China-bound FDIs worth US$3b. The economist also mentioned that President Moon Jae-in’s visit to India for his New Southern Policy that targets ASEAN and India shows South Korea’s motive to diversify from China.

Meanwhile, the firm’s analysis amongst non-financial corporates in the Korea Composite Stock Price Index (KOSPI) also revealed that they are very healthy compared to their global counterparts.

“At the aggregate level, Korean corporates have good debt management, strong operating income and robust capital expenditure,” the expert commented.

Nguyen also noted that sectors such as semiconductor and technology have higher return on capital than global rates which will help them to compete in global markets. In addition, the economist thinks that the Bank of Korea will be vigilantly supporting the economy through a competitive exchange rate and low funding costs.

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