March 20, 2020 09:20
Korea and the U.S. have agreed to sign a US$60 billion currency-swap agreement that will allow Korea to raise dollars more easily in case of a crisis.
The deal is double the size of a $30 billion agreement the two allies signed during the 2008 global financial crisis. It will be binding until Sept. 19.
The Bank of Korea and the U.S. Federal Reserve announced the decision on Thursday evening.
The agreement is expected to allay market jitters after the Korean won weakened close to W1,300 against the dollar due to the coronavirus epidemic. The won fell another W40 to W1,285.70 on Thursday. The last time it devalued so sharply was in July 2009 in the aftermath of the global financial crisis.
The Fed also decided to sign currency-swap agreements with Australia, Brazil, Denmark, Mexico, New Zealand, Norway and Singapore, ranging from $30-60 billion and lasting at least six months.
But market analysts said it remains to be seen if the deal will calm frayed nerves in the foreign exchange market, because the U.S. government's bolstered liquidity has not had a huge effect so far.
The sharp decline may be partially be due to traders betting against the won but is largely attributable to foreign investors snapping up dollars as they exit the stock market here.
A senior official at the Financial Services Commission said, "When it comes to stemming the depreciation of the won, it is very important to stop foreign investors from selling Korean stocks and exiting the market. We need to reassure foreign investors that Korean businesses' profitability will improve."
Earlier in the day, the Korea Composite Stock Price Index plummeted another 8.4 percent to 1,457.64 points after getting off to a weak start on overnight declines on Wall Street.
The junior Kosdaq plunged 11.7 percent to 428.35 points. Circuit breakers were activated in both the KOSPI and Kosdaq after share prices took a nosedive.
The KOSPI plunged to the lowest level since July 2009 in the aftermath of the global financial crisis, while the Kosdaq hit its lowest since October 2011. It was the biggest decline in the KOSPI since January of 1999 and a record drop for the Kosdaq.
Foreign investors sold off W457.2 billion worth of Korean stocks on the KOSPI and Kosdaq. From March 6 until now, more than W610 trillion worth of market cap has evaporated.
Foreign and individual investors are displaying sharply contrasting trading patterns. Foreign investors have dumped a record W9.5 trillion worth of Korean stocks so far this month, but individual investors have gone on a bargain-hunting spree, snapping up a record W8.6 trillion.
But 52.3 percent of the stocks individual investors are snapping up are Samsung Electronics shares. A staffer at the Korea Exchange said, "Investors who got through previous crises know that the stock market will recover and expect Samsung shares to rise first."
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