South Korea is expected to tide over the ongoing financial turmoil stemming from jitters over the U.S. economy and the European debt crisis, thanks to its solid exports and improved financial indicators, a report showed Wednesday.

“We think Korea’s exports will fall less than other countries (like last time) but domestic consumption could see more adjustment this time,” Sharon Lam, an analyst at Morgan Stanley, said in the report.

Lam said the Korean won could face depreciation pressure if foreigners reduce their holdings on local assets, due to fears over Korea’s external debt to Europe. A weaker local currency generally bodes well for exporters by boosting their price competitiveness.

The analyst also said South Korea’s financial system is now better prepared for financial crises compared with 2008, when U.S. investment giant Lehman Brothers’ insolvency crashed global financial markets.

“Korea’s financial system is also much less vulnerable now than in 2008 as it has rebuilt its foreign reserves and lowered its external debt level,” Lam said.

The country’s foreign exchange reserves climbed to a fresh high of $311.03 billion as of the end of July, up $6.55 billion from June. Its short-term external debt came to $146.7 billion in March.

Korea’s foreign exchange reserves could cover 200 percent of its total short-term external debt compared to the trough in 2008 when it was only enough to cover 110 percent, according to Lam.

The analyst, however, said South Korea could suffer a sharp fall in domestic consumption if the decline in global demand eats into income growth and erodes consumers’ purchasing abilities. 

(Yonhap News)