Despite best measures, Kospi drops to 10-year low

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Despite best measures, Kospi drops to 10-year low


A board at KB Kookmin Bank in Yeouido, western Seoul, shows the Kospi closing at 1,591.20 on Wednesday, down 4.86 percent from the previous trading day. The benchmark index in Korea fell below the 1,600 level for the first time in 10 years. [YONHAP]

Korean stocks fell for a sixth consecutive day to a 10-year low as the government released measures aimed at calming the markets.

The benchmark index started out the day in good shape, rising 12.76 points but then quickly declined, falling 81.24 points to 1,591.20, down 4.86 percent for the day.

It hasn’t been below 1,600 since May 2010. Stocks are down 20 percent for the month and nearly 28 percent from the start of the year.

The won continued to slide, ending the trading day at 1,245.7 to the dollar from Tuesday’s 1,243.5 won. Korea’s currency is down 7 percent since the beginning of the year.

The local currency is trading at its lowest point since June 2009.

Earlier in the day, the government released a number of market stabilization measures.

The Ministry of Economy and Finance announced its plans to adjust certain requirements for banks in an attempt to address the dollar shortage in the market as a result of a global flight to safety.

A limit on foreign exchange forward contracts for banks was lifted to 50 percent of equity capital from the previous 40 percent. For foreign banks in the market, the limit has been increased to 250 percent from 200 percent.

It was the first rollback of the forward exchange position limits in four years. This adjustment could result in $5 billion to $10 billion flowing into the market, the ministry said.

“Through this action, we hope to prompt the inflow of dollar capital,” Finance Minister Hong Nam-ki said during a crisis management meeting. “We are fully prepared where we could initiate emergency plans in foreign exchange whenever. We will act swiftly and decisively when actions are needed.”

“This is a card we have used in accordance to the practical and psychological effect on the current stage,” said Kim Seong-wook, the Finance Ministry’s director-general of international finance, hinting at the use of the nation’s foreign reserves in the swap market and lending dollars directly to financial institutions.

“Many options other than quantitative supply are prepared,” Kim said.

The government stressed that currently the foreign exchange stress level isn’t high, saying that the foreign exchange liquidity coverage ratio (LCR) is at 128.3 percent, above the government’s mandated 80 percent.

The foreign exchange LCR is an indicator used for financial company foreign exchange liquidity risk, and a lower ratio means a financial company is at risk of funding cash outflow.

Despite the relatively stable foreign exchange situation, the government has taken steps as volatility has surged recently. As of Tuesday, foreign investors dumped nearly 9 trillion won ($7.1 billion) of stocks in the market this month.

That’s more than triple the 3.2 trillion won worth of shares foreign investors offloaded in the stock market in the month of February.

Foreign investors have been on a selling spree for 10 consecutive trading days.

The Financial Services Commission said it could take additional steps against short selling, eliminating loopholes for exceptional cases.

The financial authority on Friday announced that it was temporarily banning short selling in a move to stabilize the stock market. A few exceptions were allowed for liquidity purposes.

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