Thursday, April 10th, 2014
SEOUL, KOREA - On April 9, the won-dollar exchange rate has fallen to the level of 1,040 won per dollar. This is the first time since the 2008 global financial crisis in which the exchange rate fell below the 1,050 won-a-dollar level. For year, 1,050 won had been considered a psychological line between foreign investors' buy and sell decision. If the currency exchange rate moves below the 1,050-won line, foreigners tended to move toward the sell side.
That's why market watchers are worried about the current state of affairs. Analysts today suggested market strategies to cope with the age of below-1,050-won exchange rate. Daeshin Securities analyst Oh Seung-hoon said, "Remember what stocks performed better in the past when the exchange rate was below 1,050 won. During the times when the won currency value went stronger in November 2004 and January 2006, the industrial sectors that posted higher-than-average profitability were steel and metal, electric and gas, chemical, and food and beverage."
Samsung Securities said that it is important to get away from the conventional wisdom that it is always better to invest in domestic shares instead of export ones, and small caps instead of large caps during the time of the strong won. According to its own study on stock market performance since 2010, however, Samsung Securities found totally different outcomes.
Kim Yong-gu, Samsung Securities analyst, said, "During the past few years, there were no visible patterns underscoring such belief. Most exporters managed to control exchange risks and the share of raw material imports and dollar-denominated debt levels were all different depending on company." Instead, he recommended stocks such as Korea Electric Power, POSCO, and CJ CheilJedang as beneficiaries of the strong won, as these companies could directly benefit from the latest exchange rate change and may improve their performance as the global economic conditions get better.