최근 환율변동추이는 무슨 문제일까?

-The exchange rate of 1,400 won is not far away due to the highly unusual exchange rate surge in the past three days and the exodus of foreign investors

최근 환율변동추이는 무슨 문제일까?

The won's exchange rate against the very unusual (Very Unusual) dollar has soared over the past three days (May 29-31, 2024).

For example,

May 29, KRW 1,356.16 → May 30, KRW 1,375 → May 31, KRW 1,386 → KRW 1,382.77 (see attached XE data).

As a result, the exchange rate over the past three days has soared by "W26.61," followed by a daily jump of W11 to close at W1,382.77 on May 31, 2024, and the exchange rate over the past week has soared by "1.21%" (see attached XE data).

Since this has not happened in recent years, I believe that the current foreign exchange situation in Korea is very unusual or a "準 foreign exchange crisis".

The reasons for what I say as "準 foreign exchange crisis" are as follows.

For example, the exchange rate opened at "1428.0 won" on Oct. 11, 2022, up "15.6 won" from the previous day, and closed at 1,435.2 won, up "22.8 won."

This daily increase was the largest since March 19, 2020, when the exchange rate soared due to the COVID-19 crisis.

The exchange rate also soared at the time because global hedging sentiment intensified due to the U.S. Federal Reserve's strengthening prospects for aggressive interest rate hikes, the escalation of the war between Ukraine and Russia, the intensification of the U.S.-China conflict, the U.S. regulations on semiconductor exports to China, and the resumption of instability in the U.K. financial market.

However, the daily increase over the past three days is "11 won", which is about "half" of the daily increase on October 11, 2022.

In addition, when the exchange rate surges for two to three consecutive days like this, there is little supply of dollars, especially when demand surges and dollar reserves are at the bottom.

Then why? Let's analyze the cause of why the exchange rate is soaring and the value of the won is falling like this.

The first is that, as pointed out in the last post, a significant number of foreign investors are fleeing the KOSPI.

Then, the following is a look at the stock sales of the KOSPI by foreign investors over the past three days.

Foreigners sold a total of "31,404 billion won (3,144 trillion won)" for three days, including 1,022.9 billion on May 29, 777.6 billion on May 30, and 13,399 billion on May 31.

What is unusual, however, is that the KOSPI plunged on May 29 and 30, but foreign investors sold "1339.9 billion won" on May 31, even though the KOSPI rose "1.08p (+0.04%)."

Looking at this, let's assume that foreigners are leaving the Korean stock market in large numbers now, and will continue to leave in the future..

Therefore, in the process of a large number of foreigners selling stocks and converting the won into the dollar, I think that the shortage of dollar supply has caused the exchange rate to soar.

I couldn't see it myself, but I assume that the Bank of Korea would be in a mess.

2. It is also possible that the agreement on the second phase of FTA negotiations with China has had an impact.

At the Korea-China-Japan summit on May 27, 2024, the Republic of Korea agreed with China to resume the second phase of FTA negotiations, not only trade, but also...It has also decided to open up the fields of "culture, tourism, and law."

The FTA with China took effect in December 2015 after negotiations on the product sector were concluded in 2014.

However, the second phase of the FTA negotiation agreement with China has agreed to expand exchanges and openness in the service sector, especially in culture, tourism, and law, beyond the market opening in the product trade sector that has been promoted so far.

So what is the FTA?

A Free Trade Agreement (FTA) is an agreement that grants exclusive or exclusive trade preferences to each other by eliminating tariffs and trade barriers on trade in goods and services between countries that have signed an agreement.

However, it was decided to open not only the trade of goods and services but also the fields of "culture, tourism, and law".

But the question is, now foreign investors are fleeing China, why South Korea? Does it have comprehensive ties with China.

The reasons why foreign investors are now fleeing China are "the prolonged U.S.-China hegemony war and the U.S.-China conflict," "the de-Chinaization of the EU," "severe discrimination between Chinese state-owned and foreign-invested companies," and "China's recession concerns."

1. US-China hegemonic war and prolonged conflict between the US and China

As a result of the prolonged U.S.-China conflict caused by the U.S.-China hegemony war, the U.S. has sharply raised tariffs on China's electric vehicles from 25% to 100%, steel, aluminum and lithium-ion batteries for electric vehicles to 25%, and semiconductors and solar cells to 50%, respectively.

Then why the United States? Is there such a high tariff on Chinese goods?

That's because the U.S. industry is collapsing due to China's low-cost goods and mass exports.

2. the de-Chinaization of the EU

The EU has recently established the "EU Core Raw Materials Act," which regulates the diversification of import ships that have been concentrated in China, and has effectively declared de-Chinaization with the United States, stipulating that raw materials such as rare earths, lithium, and magnesium are less than 65%.

In addition, the United States, which has now decided to bomb tariffs on major Chinese goods, is demanding that the EU join the move.

3. Severe discrimination between Chinese state-owned companies and foreign-invested companies
Another reason why foreign investment companies are leaving China is severe discrimination between Chinese state-owned and foreign-invested companies.

4. China's economic recession fears

Foreign investors are now fleeing China due to concerns over a final recession, including the Chinese real estate market and weak domestic demand.

For example, on Sept. 16, 2023, Bloomberg reported that as of the end of June 2023, foreign investment in the Chinese stock and bond markets had decreased by approximately "1.37 trillion yuan ($188 billion)" compared to the end of 2021, or in a year and a half.

By the way, on November 22, 2023, Goldman Sachs said that foreign capital that escaped from China is now in the Indian and Korean markets, respectively