Jitters over China take toll on Korean markets

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Jitters over China take toll on Korean markets

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The global sell-off of equities continued to hammer the Kospi as even behemoth Samsung Electronics spiraled down Monday.

The Seoul market’s bellwether stock, whose market capitalization accounts for 13.5 percent of the benchmark Kospi, ended near 1 million won ($830), a steep descent from 1.5 million won in March. Samsung has been falling for three consecutive trading days and has crashed nearly 30 percent since its peak in March. There are growing doubts that it can stay above 1 million won, where it has been since January 2011.

The Kospi has tumbled for six continuous trading days. Discounting Aug. 13, when it rebounded mildly, Seoul’s primary market has been on a downward slope for 11 trading days starting in the first week of the month.

The rate at which the Kospi is falling has been widening. After losing 38.48 points, or 2 percent, on Friday, the fall widened to 46.26 points, or 2.47 percent, on Monday.

The primary cause: China.

Earlier this month, several market analysts saw the bearish downturn of the Chinese stock market as a temporary adjustment. But since the Chinese government intervened in the stock market and then devalued its currency, concerns that the Chinese economy’s fundamentals are in trouble started to panic investors.

The main Shanghai composite index dipped 8 percent at one point on Monday, although it later rebounded, falling about 6 percent for the day. The drop came days after China’s purchasing managers’ index, a survey of business sentiment among manufacturing managers, hit its lowest point Friday in more than six years.

Concerns about China have spread to most Asian stock markets.

Korea’s heavy reliance on China accelerated foreign selling, analysts said. China is the biggest customer of Korean goods, accounting for 25.4 percent of its total exports as of July, government statistics show. It buys twice as much as Korea’s chief political ally, the United States, which accounts for 12.3 percent of total exports.

With volatility increasing in the stock market, the government and Bank of Korea have held emergency meetings. Financial regulators had talks Friday and Monday but did not announce any measures to immediately calm the market because officials said it is difficult to find an effective way to curb overseas selling.

“As the entire global market is shaking, it is inevitable for us to be affected,” a senior financial official said. “When a shower suddenly comes, we can’t avoid getting our clothes wet.”

In the foreign exchange market, Seoul was more active in responding to a currency war developing among countries. Officials said Seoul would follow the devaluation moves by neighbors Japan and China soon to maintain its competitiveness in exports.

The important thing is timing, they said, as a sudden collapse in the Korean won could lead to a mass exodus of foreign capital.

“Whenever the Korean won was about to exceed 1,200 won against the U.S. dollar, a load of dollars was injected into the market,” a foreign exchange dealer said.

“It seems like the work of financial authorities, trying to adjust the speed [of the won’s weakening].”

But concerns are rising among analysts that the external shocks buffeting the Korean won are unlikely to be temporary, and several foreign investment banks have already lowered their forecasts for the Korean economy.

“While sales of companies are poor, and exports and consumption are both sagging, instability in the financial markets is not just a temporary situation,” said Baek Woong-gi, an economics professor at Sangmyung University. “If the policies of the government for economic growth and their ability to institute structural reforms are doubted, the current volatility in the financial market could be prolonged.”

Expectations rose among analysts in Seoul that the shock from China affecting emerging markets and some main U.S. indices could force the Federal Reserve to postpone its highly anticipated rate hike.

“Although there was an expectation that the rate hike would come in September, given the current atmosphere in the global markets, the Fed will not be able to do it in September,” said Ko Seung-hee, an analyst from KDB Daewoo Securities, by phone. “Until the rate rise, there will be repeats of the ups-and-downs in the Korean market, but we expect the Kospi will not collapse below the 1,800 level.”

With talks ongoing with Pyongyang, the market worries less about the chance of war.

“We were tipped off that the North Korean leadership, including the military, don’t want a war at the moment, as they don’t even have enough oil to power weapons,” a high-ranking financial regulator said. “What we worry most about is a misjudgment by the young leader Kim Jong-un.”

BY KIM HEE-JIN, KIM JI-YOON AND HA NAM-HYUN [kim.heejin@joongang.co.kr]
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