If we consider two countries closely related to the South Korean economy, they would be the United States and China. In an era where all economies are influenced indirectly and directly by each other, our economy is particularly affected by these two countries. This is why investors need to consistently observe and respond.
Since the beginning of the new year, the rise of the yuan against the dollar has been concerning. The offshore exchange rate is poised to surpass the peak of 7.3647 yuan on Sept. 8, 2023. The flow of the Chinese stock market is also unstable. As 2025 begins, stock indices in most major countries are largely flat, while the Chinese stock market shows a decline of about 4 to 5%. Despite the trend of rising interest rates, the long-term bond rates in China are showing a declining trend.
What is causing uncertainty in the Chinese financial market, which had shown stable movement until the end of last year? The securities industry points to concerns over the onset of Donald Trump's second administration in the U.S. Park Sang-hyun of iM Securities noted, "While the high tariffs imposed by President Trump on China are already a known negative factor in the market, the recent likelihood of Trump's various pledges being quickly implemented at the start of the administration has amplified anxiety in the Chinese financial market."
Disappointment regarding additional economic stimulus measures from the Chinese government is also cited as a reason shaking the financial market. The implementation of monetary easing policies, including a reduction in the reserve requirement ratio, is lagging behind market expectations. Park stated, "Moreover, the potential for the U.S. Federal Reserve to adjust the pace of interest rate cuts has become a significant obstacle to the implementation of monetary easing policies by Chinese monetary authorities," indicating that if China initiates additional rate cuts amid an expanded interest rate spread between the U.S. and China, it could exacerbate anxiety in the Chinese financial market.
The surge in infections of the "human metapneumovirus" (HMPV), one of the respiratory infectious diseases, since mid-last month in China is also suspected to be a contributing factor to the instability in the Chinese financial market. According to foreign reports, HMPV, first discovered in 2001, primarily infects infants and adults over 65 years old. The U.S. Centers for Disease Control and Prevention (CDC) states that the incubation period for HMPV is 3 to 6 days. Symptoms include cough, nasal congestion, fever, and difficulty breathing. The symptoms are similar to those of influenza viruses, making them difficult to distinguish. Currently, no vaccine is available.
The turbulence in the Chinese financial market, including the expanded depreciation of the yuan, is bound to have a negative impact on the already unstable value of the won as well as South Korea's exports to China. The start of Trump's second administration is just two weeks away. For the time being, it will be essential to closely monitor trends in the Chinese financial market and the speed at which the Chinese government responds to policies.