Panic on stock exchanges deepens

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Panic on stock exchanges deepens

The panic in South Korea’s markets that started Thursday showed no signs of abating, especially for the tech-heavy Kosdaq secondary market.

For the first time in four and a half years, a circuit breaker kicked in just five minutes before noon, after the junior market tumbled more than 8 percent, or 52.94 points, compared to the previous day for more than a minute.

The last time a circuit breaker halted trading on the Kosdaq for 20 minutes was on Aug. 9, 2011, when global stock markets plummeted on news that the credit rating of the United States was downgraded.

Although the market stabilized later in the afternoon and narrowed its fall to 39.24 points from the previous trading day, or 6.06 percent, to close at 608.45, it was still the lowest since almost a year ago, when the market closed at 608.07 on Feb. 13.

The main bourse suffered as well. Compared to Thursday’s nearly 3 percent fall, the market improved. But it lost 1.41 percent compared to the previous trading day and fell to the lowest level in six months, barely holding on above 1,830. The last time the market was at this level was Aug. 24 last year, when it closed at 1,829.

The two stock markets suffered from rising tensions between South and North Korea over the shutdown of the Kaesong Industrial Complex as retribution for Pyongyang’s nuclear weapon and missile tests.

They were also affected by growing instability in global markets, particularly in Asia. Many of the Asian markets that were open on Friday saw sharp drops despite U.S. Federal Reserve Chairwoman Janet Yellen trying to ease the situation by announcing the possibility of adopting a negative interest rate policy.

Tokyo was one of the markets that was rattled severely. In just 15 minutes after opening on Friday, the Nikkei index tumbled below the 15,000 level after losing 4.9 percent. It was the first time in nearly a year and a half that the market fell below that level. The drop further deepened during the day, plummeting as much as 5.3 percent. But as the day progressed, the market clawed its way up to narrow the drop and close at 14,952.61, a 4.8 percent decline.

The situation in Hong Kong wasn’t good either.

The Hang Seng China Enterprises index, also simply referred to as H-shares, almost closed below 7,500. It dipped below that level just a minute before the market closed. At the last minute, it quickly recovered and ended the last trading day of the week barely above 7,500.

The H-shares index was 7,505.37, still 1.99 percent lower than on Thursday. H-shares are mainland shares listed on the Hong Kong stock market H-shares are commonly used as the basic investment of South Korean equity-linked securities (ELS) products. A drop in the index below 7,500 is estimated to result in roughly 4 trillion won ($3 billion) in losses on the principal investments of South Koreans ELS products. Hong Kong’s main Hang Seng index closed 1.22 percent lower at18,319.58 on Friday. Luckily the Shanghai market and the Taiwanese markets were closed for the Lunar New Year holidays.

“Global economic uncertainties and a growing preference for safer assets resulted in a selling spree,” Lim Chae-soo, a researcher at KR Futures, said. “Janet Yellen’s announcement of a possible negative interest rate raised concerns about the global economy, and the geographical tensions on the Korean Peninsula caused investors to pull back.”

Negative factors both at home and abroad seem to be piling up to spook investors.

The South Korean Ministry of Strategy and Finance, which tried to sound optimistic last month, started to acknowledge the growing threats.

“Amid sluggish exports, external risk factors have been growing, such as Chinese financial market instability, decelerating of the real economy, U.S. interest rate [hikes], falling international crude prices and North Korean [risks],” the ministry noted in its report on Friday.

The ministry said it will continue to monitor domestic and external uncertainties affecting the local financial and foreign exchange markets closely, and act “immediately” if needed. It also stressed preemptive measures that will help the economy from further deteriorating, such as spending 21 trillion won of the annual budget in the first quarter.

Market analysts say the market is now watching the local central bank.

“Despite Yellen’s efforts at hinting there could be adjustments to the U.S. interest rate hikes, because of the rising risk factors from all sides, investor preference for safe assets has been growing,” said Park Hee-chan, an economist at Mirae Asset Securities.

“The market is looking at the monetary policy committee meeting that will take place next week. The possibility of the central bank joining the global movement in further easing its monetary policies is high.”


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