‘Aftershocks’ from Spain may linger

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‘Aftershocks’ from Spain may linger

Spain has finally asked Europe for assistance to bail out its troubled banking sector, and euro zone finance ministers have agreed to lend Spain up to 100 billion euros ($124.5 billion).

Now the question on people’s lips is whether the new measure will mire the already troubled global financial market deeper in muck. However, Korean stock market analysts said Madrid’s move can be taken as a positive sign to eliminate lingering uncertainties emerging from the country.

Analysts in Seoul said negative indicators from Spain have already been calculated into the local market, meaning that share prices are unlikely to drop further now that Spain is seeking help to shore up its banking system.

Spain became the fourth European country to seek assistance since the debt crisis erupted on the continent two years ago.
Chief analysts at local securities firms said the bailout plan won’t send a major shock wave through financial markets.

“Spain’s expected request for a bailout has long been a risk, so it won’t deal a huge blow to the Korean market,” said Song Jae-hak, chief analyst at Woori Investment & Securities.
Some analysts were less optimistic.

“If more unforeseen risks turn up while Spain is recapitalizing its banks with the aid of European funds, it will probably take longer for the country to return to normal conditions,” said Lee Jun-jae, a chief analyst at Korea Investment & Securities.

Yet most pundits shared the view that the local stock market is unlikely to bottom out further as stock prices have already been on a bearish run in reflection of Madrid’s expected bailout request.

“Shares slipped on Friday despite the Chinese government’s interest rate cut because certain variables, including Spain’s chances of seeking a bailout, had already been taken into account,” said Song.

Some analysts said the local bourse will continue to fluctuate as the euro zone sends out mixed signals. They said to watch out for “aftershocks from Spain” this week.

The Wall Street Journal reported on Saturday that Moody’s is poised to downgrade the credit ratings of 17 global banks in the coming weeks. Those on the list include JPMorgan Chase, Bank of America, Citi Group, Goldman Sachs and Morgan Stanley, the five top players in the U.S.

Greece is scheduled to have a second general election on Sunday but the majority of pundits said the result will not throw markets into turmoil.

“Whatever happens in the election, it will not help Greece stand on its own two feet,” said Song Sang-hoon of Kyobo Securities. “It’s just a matter of whether the result adds more confusion to the market or not.”

However, analysts have given mixed opinions about when Koreans will resume buying risky assets, including shares.

“The Kospi could break the 2,000 mark in the third quarter, when China is expected to roll out an economic stimulus package,” said Woori’s Song. “But it could slip again by the end of the year, affected by the results of elections worldwide [including in Korea and the U.S.].”

By Kim Soo-yeon [mijukim@joongang.co.kr]

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