(Bloomberg) -- South Korea stocks, one of the worst-hit markets in the wake of U.S.-China trade tensions, face another risk: the surge in crude oil prices.
Nader Naeimi, head of dynamic markets at AMP Capital Investors, is selling Korean equities on concern rising geopolitical risks in the Middle East will raise oil prices, hurting the earnings of Korean firms. He's turning to Japanese stocks, saying they would benefit from rotational buying and relief from the trade tensions between the U.S. and Japan.
“South Korea has got the most to lose from higher oil prices in the world,” he said, adding that Korea's oil imports compared to percentage of GDP was almost 5% in 2018, the highest by far in the G-20. “The developments in oil prices as well as a better tone of economic data provides an opportunity to rotate out of Korea into Japan,” he said.
Saudi Arabia is the top crude supplier to South Korea, accounting for about 30% of the country's total oil purchases. The Asian nation imported more than 300 million barrels annually on average over the past five years, according to Korea National Oil Corp. data compiled by Bloomberg. Oil prices closed lower in London after the Saudi Aramco said it revived 41% of capacity at a key crude-processing complex.
Read: Here's How Asian Governments Are Reacting to the Aramco Attack
South Korean chemical firms and refiners would be hurt if the disruption at Saudi Aramco's facilities is prolonged and ends up with a supply shortage, according to Lee Heechul, an analyst at KTB Investment & Securities Co.
To contact the reporters on this story: Heejin Kim in Seoul at hkim579@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net;Heesu Lee in Seoul at hlee425@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Margo Towie
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