As Greeks vote for Europe, Kospi climbs 1.8 percent

Jitters in the local financial market showed signs of easing yesterday after Greece’s New Democracy party narrowly won re-election on a pro-bailout ticket on Sunday (local time).

The election result had an early rallying effect on Seoul’s main bourse in the morning. The Kospi opened at 1,893.97, surging 35.81 points from Friday, as fears triggered by the possibility of Greece leaving the euro zone were alleviated but not erased. If the country’s left-leaning Syriza party had won the election, the likelihood of Greece leaving the euro zone would have been considerably higher.

The Kospi broke the 1,900 mark at 9:59 a.m. but dipped back under within an hour.

“The market reacted positively to the outcome of Greece’s re-election, but it will take some time to see the Kospi restore to the 2,000 level,” forecast Yoo Joo-hyung, an analyst at Korea Investment & Securities. Further rallying effects will be determined by what events transpire in Greece, Spain and Italy in coming days, he added.

Shin Je-yoon, first vice minister at the Ministry of Strategy and Finance, said yesterday the result in Greece “has served as an opportunity for the Korean market to stabilize, at least for a short period.”

However, investors remain in a state of tension as the larger question of whether Spain will be able to control its mounting debts still poses a bigger threat to the integrity of the euro zone.

Korea’s top financial regulator cautioned that risks will persist as Greece has to renegotiate conditions for a bailout with the so-called troika - the European Central Bank, the International Monetary Fund and the European Union - while Spain has yet to begin its bailout process.

“Although the election is now over in Greece, the financial authorities will continue to activate their contingency plans and keep monitoring the situation in Europe as political uncertainties remain in Greece, and potential jitters will persist in the Italian and Spanish financial markets,” said Koh Seung-beom, financial policy chief at the Financial Services Commission.

Although the result of Greece’s second election in as many months has minimized the risk of a so-called “Grexit,” the euro zone fiscal crisis will still negatively affect exports of Korean products to Europe both directly and indirectly, the Korea International Trade Association (KITA) said in a report yesterday.

The report, released by the Institute for International Trade, a subsidiary of KITA, said Korea’s exports to the European Union are forecast to drop 5.5 percent in the event that the EU’s overall imports decrease 10 percent, as some economists have projected.

“Given that 18.7 percent of China’s exports are shipped to EU nations, when China sees a 10 percent drop in its exports to the EU, Korea’s shipments to China will also be affected and will likely drop 4.9 percent [as Korea supplies Chinese manufacturers],” said Hong Ji-sang, chief research fellow at the institute.

“The chances of Greece staying in the euro zone have become higher than ever, but reduced demand for imports due to the European financial crisis is inevitable ... Meanwhile, problems surrounding short-term liquidity have spread quickly. These complications will see Korea’s exports to Europe and China fall.”

By Song Su-hyun, Kim Mi-ju [ssh@joongang.co.kr]