[Photo by Han Joo-hyung]
Korean markets extended losses Tuesday despite verbal and possible physical interventions from authorities, with the secondary Kosdaq falling over 10 percent in the first two days of the week as the trade war between the United States and China spilled over to the currency territory.
Authorities warned against “excessive” selloff and vowed “aggressive” stabilization measures after the benchmark Kospi lost nearly 3 percent Monday, touching the 1,900 territory for the first time in three years. Kospi ended Tuesday down 1.5 percent at 1,917.50, the lowest since February 2016. The junior Kosdaq finished 3.2 percent lower at 551.50 after losing 7.5 percent the previous day, marking its lowest close since December 2014.
The Korean won rebounded slightly after tasting a fresh three-year low. The won remained unchanged against the U.S. dollar at 1,215.30. Against the Japanese yen, it rose 0.44 percent, or 4.99, to 1,141.48.
“The government is aware of the gravity of the situation and is closely monitoring the markets with other authorities,” said Bang Ki-sun, deputy minister of economy and finance. “When the volatility is deemed excessive, we will act fast and aggressively according to our contingency plan manual,” he said.
He advised investors against panicky selloff, stressing Korea’s stronger economic fundamentals.
Although upholding free market principles, Seoul authorities intervene with smoothing operations at times of heavy market swings. They first issue verbal intervention to calm sentiment and then increase liquidity through readied reserve funds from the government, central bank and institutional players. At a heightened liquidity squeeze, the central bank bolsters funds to financial institutions and takes monetary easing actions through bond purchases or rate cut.
The global markets suffered another rout after the U.S. raised the bar on its tariff war with China to the currency front by labeling Beijing as a currency manipulator Monday on top of slapping higher tariffs on virtually all Chinese imports.
The move followed Beijing’s weakening of the key 7-per-dollar peg for the first time in more than a decade and its declaration to stop buying U.S. farm groups. The expanded economic war between the two superpowers dealt a greater blow to the Korean markets already fragile from the country’s own trade spat with Japan.
By Sohn Il-seon and Kim Hyo-jin
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]