[EDITORIALS]Addressing foreign panicWe must not take lightly, however small they may be, signs that foreign investors might flee the Korean stock market. North Korea’s nuclear program has filled Wall Street with jitters about the Korean economy. Prices of bluechip issues, which are largely determined by foreign investors, are in constant decline. In February, foreigners were net sellers for the first time in five months, a visible sign of “Sell Korea.”
Stock investors’ goal is profits. Foreigners hold 36 percent, or 93 trillion won ($78 billion), of the total market capitalization in Korea. Considering the shock that an outflow of foreign capital would bring, we should not ignore the situation.
Korean stock markets are losing their appeal overseas because the nation’s economic situation is worrisome. A war in Iraq and a worldwide recession are the common concerns among developing economies, such as Hong Kong, China and Thailand, but Korea has one more concern: the North Korean nuclear issue.
The Korean economy is experiencing a rapid slide. There is the danger that a sudden outflow of foreign capital could shake up macroeconomic factors, such as foreign exchange rates or interest rates.
The government, however, seems to lack concern about such a possibility. The government has been optimistic even right before Moody’s, a credit rating company, downgraded its outlook on Korea to negative in February.
Of course, the selling mood of foreign investors may not be confined to the Korean market. Investors now show a preference for safer assets, such as bonds, for their portfolios. Nonetheless, foreign investors do not see a resolution to the uncertainty in the Korean economy within the first half of the year. If we look at the situation, a stock price tumble caused by a withdrawal of capital by foreign investors could happen, which could accelerate the economic slowdown.
The solution to prevent such a debacle is to improve our credibility. That requires the government to clear up uncertainties in its economic policies and address wisely the North Korean nuclear issue and issues related to U.S. troops stationed in Korea.