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Brokerages to gain from oil price rally, weakened won

Local brokerages are projecting a rosy outlook with their high-risk investment products, amid an ongoing oil price rally coupled with signs of a weakened Korean currency, analysts said Sunday.

“The record-high oil prices represent (a shift in investors’) preference for high-risk assets,” Oh Tae-wan, an analyst at Korea Investment & Securities, said.

Last week, US oil prices rose to the highest level in more than a year with Brent crude futures, -- the international benchmark for oil prices -- trading at $71.65 per barrel on April 10, hitting a five-month high. 


The US West Texas Intermediate crude oil futures rose 1 percent to 64.62 per barrel during the same period, the highest level this year.

Though analysts project the prices will fluctuate, local oil-linked exchange-traded funds such as Kodex WTI crude oil futures and Tiger crude oil futures are expected to gain from the oil price rally.

Both funds have been relatively flat in recent weeks, but Kodex and Tiger have risen 25 percent and 20.9 percent, respectively, this year.

“Meanwhile, the won’s value has been plummeting, signaling a ‘decoupling’ with the Chinese yuan,” Oh added.

The won has weakened against the US dollar and yuan in recent months, but has been displaying signs of a slow recovery. Analysts also expect the local currency to gain strength after local firms complete their dividend payouts for overseas investors by the month-end.

Securities firms, meanwhile, have gained from a weakened won in the past as it provides fresh opportunities for foreign investors.

“Once the dividend payouts are wrapped up, the pressure on a weakening won is likely to be alleviated,” said Ha In-hwan at Meritz Securities.

“(At the moment however), a weakened won will create new opportunities for overseas investors with the inflow of foreign capital into the local equities market,” he added.

The won remained steady against the US dollar on Friday at 1,139.4 won, after hitting an 18-month low on April 8, at 1,144.7 won. The local currency ended slightly higher against the yuan at 169.52, the same day.

The oil futures market in general has risen by more than 30 percent this year due to supply cuts led by the Organization of the Petroleum Exporting Countries and US sanctions on Iran and Venezuela, plus escalating conflicts in Libya.

By Jung Min-kyung (