Scrapped cap on Swiss franc drags Kospi down

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Scrapped cap on Swiss franc drags Kospi down

Switzerland’s central bank triggered turmoil in markets around the world, including in Korea, as it unexpectedly scrapped its cap on the Swiss franc’s exchange rate against the euro.

Korea’s benchmark Kospi closed at 1,888.13 on Friday, down 1.36 percent from the previous day. From early morning, Seoul’s main bourse fell below the 1,900 mark as foreign investors showed a strong selling spree.

Foreign investors sold off about 209 billion won ($193.8 million) in local shares, while institutional investors sold off around 119 billion won worth of shares.

Shares of insurance companies, retailers, securities firms and banks dropped by 2 to 3 percent. Those of electronics and machinery manufacturers fell by more than 1 percent.

Top Korean businesses in terms of market capitalization saw their stocks tumble, too. Samsung Electronics’ stock price dipped 1.35 percent. Hyundai Motor’s went down 2.01 percent.

Korean businesses were mindful of the unexpected Swiss shock and said they would strengthen their monitoring of the market.

The European market is crucial in the electronics industry as it accounts for a significant portion of sales for Korean electronics manufacturers.

According to the industry, Europe claims about 20 percent of Samsung’s entire sales while it makes up about 10 percent of the sales of LG Electronics.

“Although we don’t know yet if the shock will spread out to broader eurozone areas, we are tightening monitoring as Europe is an important market,” a spokesman at Samsung said.

The Swiss National Bank (SNB) unexpectedly scrapped its three-year policy of capping the Swiss franc against the euro in a U-turn that may change the perception of a century-old institution known for reliability.

In a surprise statement that sent shockwaves through equities and currency markets, the central bank ended its cap of 1.20 franc per euro and reduced the interest rate on sight deposits, deepening a cut announced less than a month ago.

The Swiss move affected the U.S. markets, too, sending the Dow Jones and S&P 500 to nearly 1 percent lower.

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