Stock indices have been going up and down this year depending on the war of words between Chinese and US trade negotiators. This has taken the spotlight off the trade negotiations between the European Union and Britain, which are being conducted in parallel. This in turn has relegated international pariahs affected by sanctions – Cuba, Iran, Russia, Turkey and Venezuela – to a supporting role. And then there’s Japan and South Korea.
Avowed enemies since the former colonised the Korean peninsula from 1910 to 1945, relations between the two this year deteriorated to their lowest in decades after South Korea’s top court ordered large Japanese companies to compensate wartime forced labourers. The Japanese government retaliated by banning the export of key chipmaking, display screen and semiconductor materials.
The spat took on an added twist on Saturday after a Korean student produced a parody of a TV ad aired this month by Japanese clothing retailer Uniqlo. The original stars US icon Iris Apfel (97) telling a teenager she can’t remember as far back as 80 years ago; the parody stars Yang Geum-deok (90) who tells a Korean teenager she can’t forget what happened 80 years ago. Sales had already been falling as Koreans boycott a wide range of Japanese items.
Interestingly, the value of the South Korean won has not felt the impact of this escalating trade row, helped by the fact it operates as a sort of managed float. Against the US dollar it’s held between 1,000 and 1,250 yuan for almost a decade. But don’t be lulled into a false sense of security because you can see the tremendous hit it took in the 1997-98 Asia crisis and to a lesser extent during 2008’s great financial crisis. We feel the current spat is just that, and the exchange rate should continue to hold steady.
On the other hand, Samsung Electronics' mobile devices sales have not been great, and first-half profits are off 42 per cent. Despite an increase in demand for memory, the semiconductor division remains under pressure, something the company had warned of earlier in the year. Yet, all the above has not affected the share price, which has rallied slowly but steadily since January to its highest level for the year, this week.
The Japanese yen is a more important currency, which is widely traded internationally, both as a means of payment for globally traded goods and as a speculative vehicle (as it’s widely seen as a safe-haven and good store of value). It’s weakened a little since July’s court ruling, and now stands roughly in the middle of this year’s range (104.45 to 111.90 against the US dollar). The Bank of Japan is very worried about the outlook for global trade, already burdened by decades-old economic issues including zero interest rates, slow growth, no inflation, potential deflation, plus a large cohort of very elderly people.
Looking at the share price of Nomura, established in Osaka on 25 December 1925, the share price has drifted recently and we’re back to the 1970s. There has been no meaningful recovery since the fallout from 2008 and, at 491 yen, equivalent to US$4.5, it’s just a penny stock. Then, it’s not surprising because how is a bank supposed to turn tricks and make a profit when there is no interest to carry?
