[Edaily Kim Kyung-eun Reporter] Analysts suggest that the export competitiveness of HyundaiMotor(005380)and KIA CORPORATION(000270)could improve as the possibility that the downward trend in the won-yen exchange rate is coming to an end gains traction. The automotive sector is expected to see a revaluation of its stock prices, as robust earnings—despite the decline in the won-dollar exchange rate—are coupled with an expansion of local production in the U.S.

Yoo Ji-woong, an analyst at Daol Investment & Securities, stated in a report on the 19th, “As HyundaiMotor Group’s MetaPlant America (HMGMA) marks its fourth year since beginning mass production, and with the won-yen exchange rate rebounding in the second quarter, we expect the absolute valuation discount on HyundaiMotor and KIA CORPORATION to be resolved.”

The downward trend in the won-yen exchange rate has persisted for more than 10 years since 2013, but recently, the possibility that this trend may be coming to an end has come to the fore. With Japan’s 10-year government bond yield recently rising to 2.9%, the interest rate differential with Japan’s benchmark interest rate has also widened. The explanation is that if rising interest rates in Japan lead to a stronger yen, the won-yen exchange rate could also rebound.

If the won-yen exchange rate rebounds, HyundaiMotor and KIA CORPORATION could gain a currency advantage in export markets compared to Japanese automakers. Daol Investment & Securities highlighted the possibility that a reversal in the won-yen exchange rate could serve as a key driver of stock price movements for HyundaiMotor and KIA CORPORATION.

Despite the decline in the won-dollar exchange rate, the automotive sector’s third-quarter earnings are expected to remain robust. In particular, the report noted that during periods of won weakness, HyundaiMotor recorded valuation gains and losses of over 500 billion won per quarter from its dollar-denominated sales warranty provisions. Analysts suggest that if the won-dollar exchange rate moves in the opposite direction, these valuation gains and losses could positively impact earnings.

HyundaiMotor’s third-quarter operating profit was estimated at approximately 3 trillion won, assuming a year-end won-dollar exchange rate of 1,480 won.

Analyst Yoo stated, “In the global market, we expect to see contrasting trends: Chinese manufacturers’ failure to localize their operations and the expansion of global mass production volumes by established players, including HyundaiMotor and KIA CORPORATION.” He added, “Starting in July, HMGMA plans to begin mass production of the Sportage, Palisade, and Tucson in sequence, and we recommend KIA CORPORATION as our top pick given its strong global sales performance.”