Calming market jitters
Shares at home and around the world fell into a tailspin last week. The technology-laden Kosdaq closed 6.06 percent lower on Friday amid heavy short-selling on pharmaceutical and bio stocks. The secondary market experienced its first circuit breaker in four-and-half years after the key index plunged more than 8 percent during the day. The main bourse’s composite index Kospi also fell 1.41 percent on Friday as retail investors joined the foreign selling spree. With Hong Kong’s benchmark index falling to its lowest closing levels in three-and-a-half years, losing 5 percent for the full week, local investors in securities linked to Hong Kong equities are at risk of losing 4 trillion won in principal.
Shares worldwide have been skidding since the beginning of the year. A bearish run has panned out in Asia, Europe, and United States. The slide picked up around the Lunar New Year following Japan’s surprise announcement to push the key interest rate into negative territory as a kind of last resort to kick-start the moribund economy after all other drastic measures - quantitative easing, zero interest rate, and weakened yen - have failed to work. Negative interest means that banks would have to pay the central bank interest for parking money with hopes of devaluing the yen and encourage spending and investment. But the idea backfired. The Nikkei 225 index has been tumbling ever since, losing 12.3 percent over the last two weeks. The yen instead of going down shot up.
Investors doubt negative interest will help when the growth rate and inflation are sagging. There are rumors that Deutsche Bank is teetering on the brink of bankruptcy because of negative interest that had been experimented by several European countries.
The Bank of Korea and Korean financial authorities, also in a bind amid deteriorating and volatile conditions at home and abroad, must be more discreet in their monetary and fiscal policy. They must keep in tune with the needs and sentiment of the market and investors. Otherwise actions could do more harm than good. They must seriously consider what measures can restore market confidence.
JoongAng Ilbo, Feb. 13, Page 26