Market has its worst day since Nov. 15

Korean shares yesterday went down 1.2 percent amid growing conflict with North Korea and news that Hyundai Motor and Kia Motors, the country’s two-largest automakers, will voluntarily recall 1.8 million vehicles in the United States.

The benchmark Kospi plunged 23.77 points to close at 1,959.45 yesterday. It is the steepest loss since Nov. 15. Retail and foreign investors sold their shares of Korean stocks while institutional investors’ appetite was high. The won dropped 0.5 percent to 1,123.71 per dollar, after touching 1,125.50 earlier, the weakest since Sept. 13. The currency slumped 5.3 percent in the past three months, Asia’s second-worst performer, as tensions with North Korea escalated.

“North Korea is heightening its threats day by day and that risk factor is having a negative impact on South Korean financial markets,” said Jeon Seung-ji, an analyst at Samsung Futures in Seoul. “Rising tension is prompting foreign investors to sell more Korean stocks, weakening the currency. In the meantime, exporters are likely to look for a point to sell dollars.”

Shares of Samsung Electronics also dropped 0.99 percent to close at 1.5 million won while those of LG Electronics also dropped 1.5 percent to close at 78,800 won ($70.07). The plunge in Kospi yesterday was also led by news that Hyundai and Kia will recall their vehicles in the U.S. from five model years for electronic defects. Their shares fell.

Hyundai Motor dropped 5.1 percent, the most since Nov. 5, to close at 207,000 won. Kia sank 3.3 percent.

Analysts, however, note that the drop in shares of the two carmakers will not strongly affect the image of other Korean carmakers in the overseas market.

“The latest recall doesn’t seem to be an issue that could hurt brand image of the Korean carmakers in the U.S.,” Im Jeong-jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management. “Given that the actual costs they have to cover are marginal, the share-price drop is excessive.”

Government bonds were steady. The yield on 2.75 percent notes due March 2018 was unchanged at 2.56 percent, according to prices from Korea Exchange. The five-year yield reached 2.51 percent last week, the lowest according to Bloomberg since 2000.

By Lee Eun-joo, Bloomberg [angie@joongang.co.kr]