(Repeats for Asian morning readership. No change to text.)
By Hayoung Choi and Tom Westbrook
SEOUL/SINGAPORE, Sept 20 (Reuters) - Slammed by a surge in global trade protectionism, South Korea, the world’s sixth largest exporting nation, this week headed into another major economic headwind: a spike in oil prices.
South Korea imports more oil relative to the size of its economy than any other Group of 20 nation, according to the World Bank, to power its massive manufacturing sector, a major driver of jobs and trade.
Already beset by cratering company earnings, as the global economy slows, an escalating trade dispute with Japan and crumbling consumer spending at home, Korea’s currency and stock market are among the world’s worst performing.
Though crude prices have erased most of the 15% surge since the Sept. 14 attacks on Saudi Arabian refineries, the supply shock snuffed a nascent rally in the South Korean won this week as investors doubled down on bearish bets.
“Without improvements in the economy’s exports and growth, the KOSPI can’t ensure a sustained rise,” said Lee Won, an analyst at Bookook Securities. He expected the benchmark KOSPI to fall as much as 11% in the December quarter, having already fallen more than 10% over the past 12 months.
In dollar terms, only Mexico’s tariff-struck stocks have shed more over the past year, while the won is the worst performing floating currency in Asia.
Profits for South Korean chip-making titans Samsung Electronics Co Ltd and SK Hynix Inc have plunged in the June quarter, halving at Samsung and hitting a three-year low at SK Hynix.
As a decades-old row with Japan morphs into a deepening trade dispute, imports of crucial chip-making materials have been restricted, further clouding the gloomy outlook.
More than 250 Korean companies downgraded their guidance for the next 12 months in September, twice as many as have made upgrades, I/B/E/S figures show, suggesting few are expecting a turnaround any time soon.
Despite a 6% springtime rally, helped by hopes of a U.S-China trade talk breakthrough, foreigners have liquidated about 3 trillion won ($2.5 billion) of Korean stocks since the beginning of August, in net terms.
“Expectations, not fundamentals, have lifted the markets recently,” said Lee Kyoung-min, an analyst at Daishin Securities, who expects the benchmark to shed another 11% by year-end.
South Korea’s challenges go beyond mere market sentiment and strike core parts of its economy. In August, consumer inflation hit a record low while exports posted their ninth straight month of decline.
The central bank cut rates in July and has left the door open for an October easing but with the benchmark already sitting at 1.5%, monetary options are limited.
Analysts at S&P Global this week said Korea will be harder hit than Japan by their escalating trade dispute, which could lower its growth forecasts if investment dries up.
Attempts at structural reform have also proven fraught. President Moon Jae-in’s minimum wage hikes to boost spending seem to have cruelled hiring and hit business confidence.
Tighter restrictions on property lending have also weighed on the construction sector.
“Those policies generally seem very labour-friendly and I think that’s another additional negative weight on sentiment,” said Nick Payne, head of emerging market equities for London-based asset manager Merian Global Investors.
“(Businesses) really don’t want to invest as they are not sure what is coming from the Moon government.”
And with growth in China, Korea’s biggest customer, stalling, the prospects of an external lift remain thin. China’s industrial production slowed to its weakest pace in more than 17 years in August.
“When you get a global slowdown and a trade war, Korea is just an easy target,” said Andrew Gillan, head of Asia ex-Japan equities at Janus Henderson.
$1 = 1,193.0000 won Additional reporting by Vidya Ranganathan in Singapore, Yena Park in Seoul. Writing by Tom Westbrook; Editing by Sam Holmes