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Market careens downhill, makes 1,000 barrier vanish

[Inside the korean Economic Crisis]Asian leaders agree on $80 billion fund to cope with financial crisis  PLAY AUDIO

Oct 25,2008
The stock market careened downhill yesterday, crashing through the 1,000 barrier despite continuous government effort to lessen panic by announcing that Asian countries including Korea have agreed on raising an $80 billion monetary fund.

The benchmark Kospi yesterday ended at 938.75, a 10.6 percent drop from the previous trade. This is the first time in more than three years that the main market has fallen below the 1,000 mark. The last time was in May 2005.

The tech-heavy Kosdaq market also retreated to an all-time low, ending 10.5 percent below Thursday at 276.68. And the Korean won continued to weaken against the U.S. greenback. It ended 13.20 won higher at 1,422.00 won.

Experts say government countermoves against the growing financial and economic crisis have had little effect in turning the market around as fear haunts investors.

“Investors are worried even when the government devises various measures as the bond market and foreign exchange market are showing opposite moves,” said Choi Chang-ho, an analyst with Goodmorning Shinhan.

“Because of the continuous rise of bond interest and the weakening Korean won against the U.S. dollar, investors fear uncertainty in credit and liquidity risks.”

In fact retail investors and institutional investors joined foreign investors in dumping shares, although Wall Street succeeded in gaining 2 percent overnight. Korean investors only turned around to net buying just minutes before the market closed.

“The pension fund was the only net buyer holding up the market,” said Sung at Daishin Securities. “Even equity funds are withdrawing as the market remains obscured.”

Not helping any was the earlier announcement by the central bank that Korea’s real economy was finally affected by the deepening financial crisis.

Growth of Korea’s gross domestic product in the third quarter hit the lowest in three years at 3.9 percent.

Choi of Goodmorning Shinhan said the current market downfall, however, isn’t exclusive to Korea. In fact other Asian stock markets including Tokyo, Hong Kong and Singapore also saw acute retreats.

Tokyo lost more than 9 percent while Hong Kong fell more than 7 percent.

The Daishin analyst, however, predicted that the market would turn around when the government announces this month’s trade balance.

“In just October the market dropped sharply, losing 35 percent,” said Sung. “As fast as it has lost, the market will bounce back to over 1,000 just as quickly.”

Earlier this month the government forecast that the trade balance will record a surplus in October and that the current account balance will turn around in the fourth quarter.

However, both analysts agreed that the government needs to act fast to quell fear spreading in the market.

“The current government measures, including the recent package to help the liquidity crunch in the construction industry, aren’t sufficient,” Sung said.

“The investors have lost faith in the government and they don’t know what to do,” Choi said. “Strong measures to subdue psychological fear are urgent.”

Meanwhile Asian nations agreed yesterday to accelerate their efforts to beef up the region’s foreign exchange crisis mechanism by raising a $80 billion fund before June of next year, the office of South Korean President Lee Myung-bak said yesterday.

On the sidelines of the Asia-Europe Meeting in Beijing, Lee met with leaders of China, Japan and the 10 members of the Association of Southeast Asian Nations in an informal breakfast meeting. Regional cooperative measures to avert the worsening global financial crisis were discussed, according to a statement issued by Lee’s Blue House.

“The leaders who attended the meeting agreed to speed up their cooperation to complete the creation of the $80 billion fund, the Chiang Mai Initiative, by the end of the first half of next year,” the statement said. “They also agreed to establish an independent regional financial market surveillance organization.”

Established in 2000 in the aftermath of the 1997 Asian financial crisis, the Chiang Mai Initiative aims at supplying necessary short-term liquidity under a network of bilateral swap arrangements among the Asean Plus Three nations.

Since 2006, the 13 member countries have agreed to transform the initiative into a more powerful and multilateral foreign reserve pooling system. In May of this year, they agreed on the $80 billion pool. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam will contribute 20 percent of the sum, while South Korea, China, and Japan will provide the rest.


By Ser Myo-ja, Lee Ho-jeong Staff Reporters [ojlee82@joongang.co.kr]



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