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Rumors of an impending financial crisis in September are sweeping through Korea¡¯s financial markets. On Monday, the first day of the month, the Korean stock market dropped more than 4 percent to the lowest in a year and 6 months, while the Korean currency weakened past the W1,100 barrier against the U.S. dollar for the first time in three years and 10 months.
Worries over economic conditions intensified last weekend, when U.S. stocks fell more than 1 percent, dampening investor sentiment. The mood was expected to decline further if hurricane Gustav impacts oil-refining facilities on the U.S. coast of the Gulf of Mexico.
The government and financial experts say there is almost no chance of a crisis in Korea, but market players link various economic data with the rumored September crisis and the sense of uncertainty leading to actual decline. Lee Jong-woo, managing director of HMC Investment Securities, said nothing out of the ordinary happened on the stock market on Monday. ¡°Investors unloaded their stock holdings due to predictions that share prices would fall further on Tuesday: it was psychological uncertainties that led to the sell-off," he said.
The main reason behind Monday¡¯s panic was the September crisis rumor, which refused to go away despite government efforts to calm jitters. Stoking them was a scenario where W8 trillion (US$1=W1,118) worth of foreign investment in bonds maturing in September would exit the Korean market at once, further undermining the won and leading to a string of bankruptcies in financial institutions.
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An electronic foreign currency board at Korea Exchange Bank in Myeong-dong, Seoul shows foreign exchange rates on Monday, when the U.S. dollar soared W27 to close at W1,116. /Yonhap
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Kim Hak-joo, the head of the Samsung Securities' research center, said there are worries of a credit crunch where money no longer circulates through the financial markets. Doosan Group shares fell Monday for a second day, while shares of affiliates in other mid-sized conglomerates rumored to be facing a liquidity crisis also dropped.
As confusion persisted, Choi Jong-ku, the head of the Strategy and Finance Ministry¡¯s international finance bureau, intervened verbally saying authorities would ¡°take the necessary steps¡± if the won continues to weaken excessively against the dollar. Financial Supervisory Service Governor Kim Jong-chang also intervened verbally, stressing that chances of a September crisis are zero. But the efforts failed to calm market jitters.
Yet there were plenty of factors to boost investment sentiment, including data showing consumer prices up 5.6 percent in August, tapering off from earlier increases, and a tax cut plan. But they did little to pacify investors.
On Monday afternoon, the online edition of the Times of London ran an article saying Korea is heading toward a ¡°black September as problems pile up for the ailing won,¡± pouring cold water on investor sentiment. Mentioning the September crisis rumors directly, the article spread quickly through the Internet.
HMC¡¯s Lee said market participants already decided that prospects of a crisis were minuscule. ¡°The amount of maturing bonds held by foreigners has fallen to $6.7 billion, which isn¡¯t unmanageable even if it left the Korean market all at once,¡± he said. ¡°What we are seeing is an intangible fear making a tangible impact on investor sentiment and rattling the market. Experts say predictions for stock prices or currency values are meaningless in a market gripped by panic. As long as market jitters remain, forecasts are that volatility will remain. This is why some brokerages are not issuing forecasts.
Cho Young-jin, a deputy manager at the National Agricultural Cooperative Federation, said the market fell into chaos after the won weakened past the W1,100 resistance limit market participants had expected, and there was no telling how much further it would weaken. Park Hee-woon, head of research at Eugene Investment and Securities, said there seems to be no solution to the jitters, adding he was unsure how much further stock prices would fall.
(englishnews@chosun.com )
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