Despite a significant decline in the KOSPI index due to geopolitical tensions and potential delays in U.S. interest rate cuts, South Korean automobile stocks like Hyundai and Kia rallied, benefitting from a favorable exchange rate caused by a surge in the value of the Korean won against the U.S. dollar.
The surge in the value of the Korean won against the U.S. dollar is due to international political instability. This has ultimately benefited South Korean companies, especially automobile manufacturers, thanks to favorable exchange rate effects on their export businesses.
On Apr. 16, the KOSPI index experienced a drop of 2.28% (60.80 points) from the previous day. However, Hyundai Motor still managed to close up by 0.21% at 240,000 won ($172.89), while Kia ended the day 0.09% higher at 114,700 won ($82.60). Out of the top 25 stocks in KOSPI by market capitalization, only Hyundai and Kia finished the day with positive gains.
Foreign investors and institutions have driven up the stock prices of Hyundai and Kia. Foreign investors purchased $34.5 million worth of Hyundai shares, while institutions bought $36.2 million worth of Kia shares. Both groups appear to have recognized these companies as beneficiaries of the higher exchange rates.
For export companies such as Hyundai and Kia, a rising won-dollar exchange rate is favorable. This is because a weaker won enhances the competitiveness of their products overseas, allowing for profit from currency differences.
During the day, the exchange rate U.S. dollar to Korean won exceeded 1,400 won, reaching its highest point in a year and five months. In response to this, the Ministry of Economy and Finance, along with the Bank of Korea, stated that they are closely monitoring the exchange rate movements and foreign exchange supply and demand. This statement suggested a possible intervention to stabilize the exchange rate, leading to a slight decrease, with the exchange rate eventually closing at 1,394.5 won.
There is a possibility that the exchange rate may increase further. The U.S. dollar is considered a safe-haven asset, which tends to rise when there is a spread of risk-averse sentiment. Currently, this sentiment is fueled by Israel’s consideration of retaliation following an attack by Iran.
Furthermore, high exchange rates are expected to persist due to indications that the U.S. has not yet curbed inflation. The U.S. Department of Commerce reported a 0.7% increase in retail sales for March, which is more than double the market forecast of 0.3%. This has reinforced the expectation that the U.S. may delay the cut in its base interest rate from June to September.
Hyundai and Kia have exhibited strong performance in recent times. According to financial information provider FnGuide, securities analysts have increased their operating income forecasts for Hyundai and Kia this year. The forecast for Hyundai rose from $10.3 billion to $10.4 billion, while that for Kia increased from $8.04 billion to $8.09 billion
The stock market remains optimistic about the future of these companies, as several investment firms have raised their target prices for Hyundai and Kia. DB Financial Investment raised Hyundai’s target price from $194.45 to $230.46 this month. Similarly, KB Securities and Sangsangin Securities raised their target price to $208.85. For Kia, Kiwoom Securities raised the target price to $86.42 while Yuanta Securities raised it to $97.22.
