Virus fears jolts financial markets in Korea

25-Feb-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

The financial malaise created by the rapid spread of the novel coronavirus roiled the nation’s stock market Monday, sparking a mass exodus of foreign investors from the bourse.

The turbulence was widely expected, as investors lost confidence in the benchmark KOSPI even before the market opened amid escalating concerns over the epidemic following the government’s announcement Sunday to raise its alert for the infectious disease to the highest of four levels.

The main bourse opened with a drop of more than 2 percent Monday and continued to tumble throughout the day before closing at 2,079.94, down 3.87 percent from the previous trading day. The secondary tech-heavy Kosdaq closed at 639.29, down 4.3 percent during the same period, the lowest since December 24 when it fell to 638.91.

The market crash was driven by foreign investors who went on a selling spree on mounting worries over the virus. Foreigners’ net sold shares worth 786.8 billion won ($644.8 million), the largest since November 26 last year, according to KRX.

In contrast, individual and institutional investors recorded net purchases of 607.7 billion won and 192.9 billion won, respectively.

The growing fear of the virus has also weakened the value of the local currency against the US dollar.

The volatility drove the exchange rate to top the 1,200-won mark per dollar last week. But with the virus fear showing little sign of abating, the figure has since continued an upward cycle to close at 1,220.2 won per dollar on Monday, up 11 won from the previous trading day. For the past decade, the all-time high of the rate was 1,275 won on May 24, 2010.

With worries on the financial volatility escalating, financial authorities expressed their will to possibly intervene in the financial market to prevent market confusion.

Warning against ‘herd behavior’

The Ministry of Economy and Finance said Monday it would pay special attention to the foreign exchange market, as the US dollar approaches to a record-high level in years against Korean won amid suspicions of speculative transactions.

“The government will take necessary measures in case the lopsided pattern in the exchange rate continues unduly for such reasons as speculative transactions amid the spread of the COVID-19,” vice Finance minister Kim Yong-beom said in an expanded meeting of macroeconomics.

“We will swiftly and sternly deal with the situation in accordance with contingency plans when abnormal market volatility intensifies.”

He said local financial markets would continue to be vulnerable to the virus-driven uncertainties.

“On the front of the real economy, the number of overseas tourists will decline,” he said. “On top of that, concerns are that the virus fear will limit the economic recovery in line with shrinking domestic consumption and weak exports to China.”

The decline in the value of the local currency against dollar was the third-largest among ten emerging countries, such as China, India and Brazil, according to the Bank of Korea.

According to the central bank, the valuation of won against greenback dropped by 4.6 percent as of February 21, compared to the end of 2019.

The US dollar gained stronger ground against won, as the pneumonic epidemic has cast multiple negative economic impacts here, according to analysts.

“The short-term outlook for the won-dollar exchange rate will depend on how serious the virus spread here will be,” Samsung Securities analyst James Huh said.

But the number of confirmed cases of the virus will be on the rise in a near future and this will weaken customer confidence, according to the analyst.

“We expect the exchange rate to fluctuate between the range of 1,180 to 1,250 won in the next month,” he said.

A short-term impact from the virus is inevitable in the local stock markets as well, according to analysts.

The KOSPI rallied to top the 2,200-mark in mid-February, but the main bourse has since ridden on the downward curve due to the virus setback. The nation’s first stock market was on the rise from the beginning of February when the corona-related fear did not soar to an alarming level.

“A near-term volatility in the global financial market will be inevitable,” Daishin Securities analyst Lee Kyoung-min said.

“But the global economic indices are expected to bounce back with a V-shaped curve after the coronavirus fear disappears. Our view is that a favourable investment environment will be shaped in the global equity market after the second quarter of 2020.”

The analyst also advised investors to purchase promising stocks here, such as semiconductor and secondary battery, at a low price by taking advantage of the virus fear.


Category: Korea

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