Gov't activates sidecar, readies $73B fund amid Kospi's post-tariff 'Black Monday'

Home > Business > Economy

Gov't activates sidecar, readies $73B fund amid Kospi's post-tariff 'Black Monday'

Published: 07 Apr. 2025, 18:56 Updated: 07 Apr. 2025, 21:14

PARK EUN-JEE
[email protected]

Audio report: written by reporters, read by AI

An electronic board at Hana Bank in central Seoul displays the closing market figures on April 7. The Kospi closed at 2,328.20, down 5.57 percent from the previous session, while the Kosdaq plunged 5.25 percent to close at 651.30. The won ended at 1,467.8 won against the dollar, up 33.7 won from the previous day’s 3:30 p.m. close. [NEWS1]

The main Kospi index plunged below the 2,400 threshold on Monday, prompting the authorities to activate the sidecar mechanism and to place 100 trillion won ($73 billion) in stability funds at the ready.

The won also sharply depreciated against the greenback to close at 1,467.8 won, up 33.7 won, marking the biggest one-day drop since March 19, 2020. Korea's currency also lost against the yen to post 1,008.21 won, its lowest level since March 22, 2022.

In what the Korean media dubbed another “Black Monday” resonating with selloffs across Asian indexes, the downturn comes as the impact of U.S. President Donald Trump's tariff war and subsequent bloodbath on Wall Street ripples across the world.

The Kospi lost 5.57 percent to close at 2,441.55 on Monday, driven by foreign investors net selling 2.09 trillion won. The decline is the largest daily drop since the market rout of Aug. 5, 2024, when the Kospi tumbled 8.77 percent.

The index took a negative cue from U.S. markets last week as the S&P 500 plummeted 5.97 percent and the Dow plunged 5.5 percent.

“The sharp fall is attributed to the concerns over a possible economic recession and China’s retaliatory tariffs against the United States,” said Kim Seok-hwan, an analyst at Mirae Asset Securities.

“The markets are disappointed that the Fed is sticking with its current monetary decisions without a drastic shift,” Kim said in a report released on Monday.

Financial Services Commission Chairman Kim Byoung-hwan, left, and Financial Supervisory Service Gov. Lee Bok-hyun, right, converse at a financial policy meeting held at the Seoul Government Complex in Jongno District, central Seoul, on April 7. [NEWS1]

The weak currency will likely continue for some time as investors tend to bet on haven assets in times of uncertainty.

“As concerns over a global economic slowdown grow over the spreading tariffs, U.S. Treasury yields have declined and the yen has strengthened.” He added, “The yen’s appreciation could continue for the time being.” said Baek Seok-hyun, an economist at Shinhan Bank.

Against this backdrop, Korea’s financial authorities on Monday announced plans to deploy a 100 trillion won market stabilization program in response to growing uncertainty in the wake of the U.S. government's announcement of reciprocal tariffs.

According to the Financial Services Commission (FSC), the plan was discussed during a financial policy meeting chaired by FSC Chairman Kim Byoung-hwan on Monday. The meeting included top financial regulators and leaders from Korea’s five major financial groups — KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup — as well as heads of policy financing institutions.

"With uncertainty in global and domestic financial markets and the economy running high following the U.S. tariff announcement last week, the next two months — leading up to the launch of a new government — will be critical for maintaining market stability," said Kim. "We will ensure that the stabilization program, valued at approximately 100 trillion won, is ready to be executed promptly to supply liquidity as needed."

A similar stabilization program was launched in the second half of 2022 in response to risks stemming from real estate project financing (PF). That package included bond market support through a bond stabilization fund, stock market interventions, and guarantees for PF developers, initially valued at around 50 trillion won. The program was later expanded to roughly 94 trillion won and remains active.

Monday’s meeting also focused on supporting companies impacted by the ongoing trade tensions. Kim said existing policy measures and those currently underway would proceed as scheduled to maintain investor and market confidence.

The FSC also reiterated its commitment to fast-tracking the creation of a 50 trillion won strategic industries fund, aimed at bolstering advanced sectors in response to trade disputes.

Kim called on private financial institutions to play a proactive role in market support.
“Especially in times like these, the financial sector must fulfill its core function — ensuring stable markets and uninterrupted financial intermediation,” he said. “We expect financial holding companies and policy institutions to take the lead in supporting both market stability and capital access for businesses.”

U.S. President Donald Trump warned foreign governments they would have to pay "a lot of money" to lift sweeping tariffs, characterising the duties as "medicine" and delivering more pain for global financial markets on Monday.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY PARK EUN-JEE, KIM KYUNG-HEE, KIM NAM-JUN [[email protected]]