{"id":2206953,"date":"2024-10-28T15:40:04","date_gmt":"2024-10-28T06:40:04","guid":{"rendered":"https:\/\/koreapro.org\/?p=2206953"},"modified":"2024-10-29T16:59:19","modified_gmt":"2024-10-29T07:59:19","slug":"how-south-korean-investors-can-trump-proof-their-portfolios-this-election","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/10\/how-south-korean-investors-can-trump-proof-their-portfolios-this-election\/","title":{"rendered":"How South Korean investors can Trump-proof their portfolios this election"},"content":{"rendered":"
With the U.S. presidential race <\/span>tightening<\/span><\/a>, South Korean investors may face currency volatility, trade barriers and sectoral disruptions if Donal Trump returns to office, threatening key asset classes and industries that have thrived in recent years.<\/span><\/p>\n By focusing on diversified assets, stable markets and resilient sectors, investors can prepare to protect their portfolios from anticipated changes should Trump be re-elected for a second term.<\/span><\/p>\n CURRENCY AND TRADE RISKS<\/b><\/p>\n The Korean won has shown increased volatility against the U.S. dollar, losing nearly 80 won in the past month alone and trading close to 1,390 won to the dollar. Analysts <\/span>project<\/span><\/a> it could slide further to 1,450 if a Trump presidency drives up dollar demand.<\/span><\/p>\n A strong dollar would inflate import costs for South Korean exporters, particularly in sectors like semiconductors and electronics that depend on dollar-priced imported components. This impact on costs could erode profit margins, even as a weaker won boosts South Korea\u2019s overall export competitiveness.<\/span><\/p>\n Historically, Trump\u2019s trade policies <\/span>propelled the dollar upward<\/span><\/a> while <\/span>weighing<\/span><\/a> on trade-dependent currencies like the won. For investors focused on export-heavy South Korean firms, hedging against currency risk through options like currency-hedged <\/span>exchange-traded funds<\/span><\/a> (ETFs) or exposure to dollar-denominated assets could mitigate the impact of further dollar appreciation.<\/span><\/p>\n South Korean President Yoon Suk-yeol (center) participates in the 27th ASEAN summit, Oct. 10, 2024 | Image: ROK Presidential Office<\/a><\/em><\/p><\/div>\n TRADE PROTECTIONISM<\/b><\/p>\n During Trump\u2019s first term, <\/span>tariffs on steel and aluminum<\/span><\/a> spurred significant retaliatory measures, reconfiguring supply chains and impacting global trade dynamics. South Korea, which exported <\/span>nearly $98 billion<\/span><\/a> in semiconductors in 2023, could face renewed tariff pressures if Trump targets Asian imports once again.<\/span><\/p>\n While this environment brings challenges, it also offers opportunities for investors to manage risk.<\/span><\/p>\n One key strategy for investors is to diversify into markets with stable trade relationships with South Korea, particularly Association of Southeast Asian Nations (ASEAN) countries. South Korea\u2019s trade with ASEAN nations surpassed <\/span>$176 billion<\/span><\/a> in 2021, positioning the region as a natural buffer against U.S. or European trade barriers.<\/span><\/p>\n Investors can consider ASEAN-focused ETFs that emphasize South Korean companies with established operations in ASEAN markets, especially in sectors like consumer electronics and infrastructure, where demand remains high.<\/span><\/p>\n Another approach is to diversify into Latin American markets, such as the <\/span>Mercosur countries<\/span><\/a>, which present growing opportunities for South Korean exporters and relatively lower risk from U.S.-led tariffs.<\/span><\/p>\n Funds or indices that track South Korean companies with exposure to Latin America can offer a hedge against potential U.S. and European market constraints. Emerging market funds with Latin American assets may provide added revenue stability if trade barriers increase elsewhere.<\/span><\/p>\n In selecting sectors, some may face lower risks due to global demand and limited competition with U.S. products. For instance, semiconductors, electric vehicles and pharmaceuticals, are integral to global supply chains, making them less vulnerable to restrictive tariffs.<\/span><\/p>\n Sector-specific ETFs focused on South Korean exports in these industries, or individual stocks within these sectors, could offer more resilience in the face of trade shifts.<\/span><\/p>\n Monitoring South Korea\u2019s ongoing trade policy developments is essential, as government agreements with ASEAN, Latin America and other alternative markets may lead to these regions receiving trade and investment support.<\/span><\/p>\n By staying informed on regulatory shifts and strategic trade initiatives, investors can gain early insights into sectors or regions likely to benefit from new trade partnerships, positioning their portfolios for greater resilience against potential U.S. protectionism.<\/span><\/p>\n SK Battery America\u2019s plant in Georgia, United States, Aug. 1, 2024 | Image: SK Battery America via Facebook<\/a><\/em><\/p><\/div>\n ASSET DIVERSIFICATION<\/b><\/p>\n With Trump\u2019s rising competitiveness in key battleground states, defensive assets can offer South Korean investors a safeguard against policy shifts. Short-term bonds and consumer staple stocks are often safe havens during uncertain periods.<\/span><\/p>\n For instance, 10-year U.S. Treasury yields proved <\/span>resilient<\/span><\/a> during Trump\u2019s initial tariff waves. Such assets offer stable returns and provide a buffer against sharp policy changes that might affect broader markets.<\/span><\/p>\n In addition to bonds, international dividend-paying stocks in sectors with stable demand, like U.S. or European utilities and health care, offer further insulation from market swings. These sectors provide reliable dividends, ensuring a steady income stream even amid Trump\u2019s potential trade or tax shifts.<\/span><\/p>\n Further, investors will likely need to pursue a balanced energy portfolio. While Trump may favor traditional energy sources like oil and gas, South Korean businesses will likely continue to pursue their global <\/span>decarbonization goals<\/span><\/a>. Such a strategy will help position investors for stable returns that will likely outlast Trump\u2019s tenure.<\/span><\/p>\n Given the contrasting policies, investors may find a balanced approach beneficial, with exposure to traditional energy assets for short-term gains and renewables for long-term growth.\u00a0<\/span><\/p>\n However, not all U.S.-based investments remain equally safe. Over the past four years, major South Korean companies, including Samsung and SK Hynix, invested billions in U.S. projects to leverage subsidies under the Inflation Reduction Act (IRA) and CHIPS Act.<\/span><\/p>\n For instance, Samsung committed <\/span>$17 billion<\/span><\/a> to a Texas semiconductor facility, while other South Korean firms <\/span>expanded<\/span><\/a> U.S.-based battery and EV component production.<\/span><\/p>\n If Trump eliminates IRA and CHIPS Act incentives, as he has <\/span>stated<\/span><\/a> he intends to do, these investments could become liabilities, with the removal of subsidies sharply reducing project profitability in semiconductor and green energy sectors.<\/span><\/p>\n South Korean President Yoon Suk-yeol visits the Agency for Defense Development’s drone research site, Dec. 29, 2022 | Image:\u00a0ROK Presidential Office<\/a><\/em><\/p><\/div>\n INVESTING IN DEFENSE<\/b><\/p>\n