Greece angst stops the markets in their tracks

Electronic boards at Korea Exchange Bank in downtown Seoul on Monday show both the Kospi and Kosdaq closing lower than on Friday as jitters from the Greek crisis prompted net selling by foreign investors. [NEWSIS]

Both the Kospi and tech-heavy Kosdaq retreated as worldwide concerns over the Greek crisis deepened.

This is a turnaround from the bullish momentum the stock markets enjoyed for more than a week.

In particular, the secondary Kosdaq market was on a roll as it reached its highest level in almost seven years on Thursday. The same day, the Kosdaq closed above 750 at 753.66 for the first time since Nov. 16, 2007, during the prelude to the global financial crisis. Furthermore, market cap on the secondary market even reached an all time record of 204.8 trillion won ($182.3 billion).

Concerns about Greece come at a time when the Korean economy is at its lowest point in recent years with a domestic market quickly contracting due to the Middle East respiratory syndrome (MERS) outbreak and exports struggling mightily.

According to the Korea Exchange on Monday, the Kospi index was down 1.42 percent to close at 2,060.49, while the Kosdaq dropped 2.33 percent to close at 733.04, as foreigners net sold Kospi shares worth more than 110 billion won and retail investors were the largest net seller of Kosdaq shares.

The Kospi started weakly at 2,055.72 in the morning, nearly 35 points lower Friday’s close of 2,090.26. The index dropped as low as 2,054.33 about 30 minutes before the close, but barely making it back to the 2,060 mark thanks to institutional investors purchases.

The Kosdaq, which continued rising over the past few weeks to reach 750.5 points on Friday, lingered near 730 as retail investors and foreigners sold shares.

The market was swayed despite efforts by the government and state-run financial institutions to relieve investors’ concerns, saying Greece may face default temporarily but it won’t exit the eurozone.

“Even if Greece declares default, it is expected to be only temporary and is not likely to continue into an exit from the eurozone, which makes the overall market think the crisis is likely to have only a limited impact on capital movements by nearby countries’ investors,” said Deputy Finance Minister Joo Hyung-hwan at a macroeconomic and finance meeting of the Ministry of Strategy and Finance, Bank of Korea, Financial Services Commission and Korea Center for International Finance on Monday in central Seoul. “The impact of a Greek default on the global capital market will be smaller than the Southern Europe economic crisis in 2010.”

The impact will be even smaller on Korea, Joo added, saying Korea’s external financial soundness is relatively good, particularly in foreign currency reserves and the portion of short-term foreign debt, and Korea doesn’t have much trade or many capital exchanges with Greece.

According to the Ministry of Trade, Industry and Energy, Korea’s exports to Greece through May this year were $165 million, a 73.1 percent decrease from a year earlier.

Korean exports to Greece were only 0.2 percent of last year’s total of $572.6 billion, with Korea’s exposure to the Greek capital market about 0.8 percent of its total worldwide.

A core business for Greece is shipping. Last year, Korea had $1.049 billion in exports to the country with $785 million involving ships. The figure dropped by 89.5 percent this year to $453 million, but it looks like people in the business don’t worry much about Greece.

“We actually don’t worry too much about this Greece situation, because most Greek companies have put their assets overseas for efficient operation,” said a spokesman of a shipbuilding company on condition of anonymity. “The possibility is very low of those Greek companies not paying for ordered products.”

But industry insiders worry the country’s overall export performance could be influenced if Greece declares default, because it could affect other European nations suffering such as Italy, Spain and Portugal.

Koreans exports to the EU totaled $51.6 billion last year, about 9 percent of the country’s export volume.

“Korea only had $19 billion in exports to the EU through May this year, which dropped by 16.7 percent from a year earlier,” said a spokesman for the Korea International Trade Association (KITA). “Major businesses, including shipbuilding and car parts, that have been relying heavily on the EU could be directly affected.”

According to KITA, year-on-year sales for most core export products to the EU through May plunged, as sales of wireless communication devices dropped 59.1 percent, while oil products declined 60.3 percent, automobiles 20.5 percent and ships 5.5 percent.

“Sales of major smartphones, electronic appliances, synthetic resins and petrochemical synthetic raw materials will decline sharply for a short period of time and the figures won’t be improved easily,” said a spokesman for the Korea Trade-Investment Promotion Agency (Kotra).

However, unlike industry members’ worries, local stock analysts say the impact of the Greece crisis will be limited on both the global and Korean economies, because major European financial institutions have relatively low capital exposure to the Greek market.

“That the global financial market will become more volatile due to the Greece crisis is unavoidable, but the impact won’t be huge,” said Lee Kyung-min, an analyst at Daishin Securities.

“In the case of Korea, the government’s allocating 15 trillion won for a supplementary budget and the BOK’s lowering of the base interest rate last month will help minimize the negative impact of the Greece crisis this time.”

BY KIM JI-YOON, KWON SANG-SOO [kim.jiyoon@joongang.co.kr]