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Investors wary after China crashes

With local funds tied to Chinese market, fears over what’s next

July 29,2015
Concerns are mounting in Korea over the aftermath of China’s stock market crash.

The benchmark Kospi plunged to around 2,016 at 9:30 a.m. on Tuesday, down more than 1 percent from a day earlier. Foreign investors sold 132 billion won ($113 million) and individual investors dropped 87.7 billion won.

The main bourse bounced back in the afternoon and closed at 2,039.1, rising 0.01 percent, driven up by institutional investors that bought 182 billion won.

The secondary Kosdaq fell for three consecutive days, closing at 745.24, down 0.77 percent from a day earlier.

“For us, the Chinese market is riskier than the Greek debt crisis,” said a senior Seoul official.

“It’s because Korea’s real economy is heavily dependent on China.”

Investors who bought into Korean funds with investments in the Chinese stock market could see losses in the near future, he added.

“In the long term, investors could see a loss of their fund investments,” the official said.

“There are currently many funds in Korea that are related to the Chinese stock market.”

According to statistics by the Korea Financial Investment Association, the total net asset value of funds sold by Korean managers that are related to the Chinese stock market stood at 6.4 trillion won as of Tuesday, accounting for about 8.4 percent of the net value of all funds in the Korean market.

As Korea is seen as an emerging market for investors, any shock in the Chinese market would impact Korea in the near future, analysts said.

“The overall situation in Asian markets is not that good,” said Kim Doo-un, an analyst at Hana Daetoo Securities. “For foreigners, the Korean stock market is related to the Chinese market.”

“If the Chinese market [worsens], the Korean market would not be the only one affected,” said another analyst at KDB Daewoo Securities. “[It] would have an impact on all emerging markets.”

However, a group of Seoul officials from the Financial Services Commission (FSC), Financial Supervisory Service and Korea Exchange held a closed-door meeting on Tuesday and judged that the current situation was not that threatening for the Korean market.

“At the meeting, we tentatively concluded that a plunge in the Chinese stock market would not put pressure on the Korean market in the short term,” an FSC official said.

“Although it will temporarily shrink investments by foreigners, we do not believe it will lead to a sudden collapse in the Korean market.”

Sung Tae-yoon, an economics professor at Yonsei University, said the current situation in the Chinese economy is similar to that of the Korean economy.

“The falling Chinese stock market demonstrated a downturn in China’s real economy,” he said.

“The Chinese economic situation is worsening, and the expectation in the stock market that it will get worse and worse is rising. The future of China’s stock market depends on how much the Chinese government is willing to prevent further downturn in the real economy.

“Korea’s real economy is also sagging, and that is being reflected in the Korean stock market,” he added. “In Korea, stocks that are sensitive to the economic situation and deflation will quickly fluctuate in the near future, as in China.”


BY KIM HEE-JIN [kim.heejin@joongang.co.kr]


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