The Chinese currency was cheaper by about 3.5 percent compared to only two days ago. It was set at 6.3306 yuan versus the U.S. dollar on Wednesday, compared to 6.1162 yuan on Monday.

As for its impact on South Korea’s exports, the outlook from the government and private research institutes was split.

While local analysts predicted the impact of the first yuan devaluation on South Korea would be limited, many of them said the yuan’s drop for the second consecutive day surprised the global market.

Prevailing market predictions noted that a further depreciation would be conducted on a gradual basis. Analysts shared the view -- despite their mixed projections -- that the uncertainty has winded.

Daishin Securities analyst Park Hyung-joong said the devalued yuan could bring about (synchronized) weakening of currencies of emerging markets in Asia, whose economies are dependent upon China.

“As the asset value of emerging market currency-denominated assets is projected to fall, there is a need to be alert over the possibility of capital outflow from the emerging markets (and South Korea),” he said.

Foreigners net-sold shares worth 299.7 billion won ($251.8 million) on Korea’s main bourse on the day, posting a net-selling positon for the sixth consecutive trading session.

A Hyundai Securities analyst cited the past cases when foreigners pulled their investments whenever the yuan showed weakness versus the dollar. He said the recent cases were earlier this year and the first half of 2014.

Samsung Securities analyst Yoo Seung-min forecast that “many local sectors will undergo negative impacts if the Chinese currency’s weak position further expands and maintains a longer-than-expected period.”

Yoo echoed the prediction of a possible capital outflow, adding that “the local stock market could face wider fluctuation.”

The Finance Ministry has enhanced its monitoring of the foreign exchange market in close collaboration with the Financial Supervisory Service and the Bank of Korea.

Government officials do not rule out the possibility of a further depreciation of the Chinese currency.

Deputy Prime Minister and Finance Minister Choi Kyung-hwan, however, forecast that the export sector would benefit from the cheap yuan, saying that “Korea exports a great portion of intermediate goods to China.”

As China’s exports to the world are estimated to recover on its weak yuan, Korea will enjoy the chain effects, he said.

But the overall outlook on exports among private researchers is not positive. They highlight the upgraded quality of Chinese goods, which could be a threat to Korean goods in terms of price competitiveness on the global stage.

By Kim Yon-se (kys@heraldcorp.com)