Market trembles at economic headwinds

The Korean stock market started off weak Friday and at one point tumbled 26.13 points or 1.34 percent compared to the last trade on Wednesday, spooked by such negative factors as missile launches by North Korea and growing worries of a global recession.

But it recovered and by the end of the day the benchmark Kospi ended 11.20 points lower to close at 1,927.17, down 0.58 percent.

The market was closed Thursday for Liberation Day.

Retail investors continued their net buying for the seventh consecutive trading day Friday and institutional investors turned around from a selling spree that lasted six consecutive trading days.

However, foreign institutional investors continued to sell stock, which has lasted for 12 consecutive trading days.

Although the Korean market had stabilized after falling sharply last week as a result of Japan dropping Korea from its so-called white list of trusted trading partner, the market Friday was rattled by growing fears of a global recession.

Korea’s three-year treasury yield on Friday fell 5.4 basis points to 1.095 percent. A 10-year treasury yield has fallen 5.3 basis points to 1.52 percent.

On Tuesday the 10-year treasury yield fell 5.6 basis points to 1.229 percent while the shorter treasury yield only fell 3.2 basis points to 1.150 percent.

The difference in the treasuries is now only 4.25 basis points.

This is lower than the last time the gap narrowed to 6 basis points, which was on Aug. 12, 2008, just a month before the global financial meltdown started with the bankruptcy of Lehman Brothers.

Usually long-term treasuries have higher yields than short-term. When long-term yields drop to the level of shorter-term treasuries, it indicates that investors are concerned about the economic growth outlook and are flocking to safer investments.

Korea’s recent treasury yield is a reflection of U.S. treasuries.

Concerned were sparked Wednesday when the yield on the U.S. two-year treasury for the first time since June 2007 exceeded that of the 10-year treasury. The interest rate on the shorter treasury was 1.628 percent, higher than the 10-year’s 1.619 percent.

“The trade conflict between the United States and China and the U.S. government labeling China a currency manipulator is affecting the financial market’s volatility,” said Koo Hye-young, a Mirae Asset Daewoo senior analyst. “And there are growing questions over whether trade conflict between Korea and Japan will lead to struggles in industry overall.”

Daishin Securities analyst Kong Dong-rak said for the time being the fear of a recession in the global market will likely remain.

North Korea firing missiles isn’t helping.

Despite President Moon Jae-in’s optimistic speeches about expanding inter-Korea cooperation, Pyongyang tested more missiles on Friday.

This marked the sixth time Pyongyang conducted such tests in just under a month and the eighth time this year.

On Friday the Korea Finance Ministry released a report that continued its negative assessment for the fifth consecutive month.

The ministry in its monthly economic “green book” published since 2005 said the Korean economy is facing major headwinds including shrinking exports due to the struggles of the semiconductor industry and tensions between the United States and China and Korea and Japan.

The report said the government will execute a supplementary budget that was recently passed to help revitalize investments, exports and domestic consumption.

But a growing fear of a weakening economy is already being felt.

Goldman Sachs on Thursday lowered Korea’s economic growth outlook for the year along with three other Asian markets: Hong Kong, Singapore and Taiwan.

Goldman Sachs’ growth projection for the Korean economy this year was lowered from 2.2 percent to 1.9 percent. Next year’s growth was also revised downward from 2.3 percent to 2.2 percent.

It predicted the BOK would make another cut in the key interest rate in October. The Korean central bank last month cut the key rate 0.25 percentage points, citing growing tensions between Korea and Japan.

Hong Kong’s growth estimate was drastically cut from 1.5 percent to 0.2 percent while Singapore’s economy is expected to expand 0.4 percent, a sharp decline from 1.1 percent earlier. Taiwan’s projection was adjusted from 2.3 percent to 2.2 percent.

The Financial Services Commission on Friday held an internal meeting in which it said it was closely watching the growing uncertainties.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]