By Cho Jin-seo
The won-dollar exchange rate rose to a nine-month high Tuesday and the stock markets also suffered mass selling by foreigners, as escalating military tension between the two Koreas rattled the already sluggish financial markets in Asia.
The won closed at 1,250 won per dollar, a move of 35.5 won from the previous day. Dealers said that government intervention managed to pull down the exchange rate from over 1,270 during the day.
The KOSPI was down 2.75 percent at 1,560.83. The index once fell more than 4 percent but recovered some of the losses in late trading thanks to massive buying from pension and institutional funds. The tech-heavy Kosdaq fell 5.54 percent to end the day at 449.96, its lowest since April 2009
The drop in the Seoul stock market was no worse than other major stock indices in Japan (Nikkei, -3.06 percent), Hong Kong (Hang Seng, -3.5 percent) and Taiwan (-3.2 percent). However, it was the military tension between South and North Korea that was instrumental in Tuesday's global market chaos, market watchers said.
"I thought I was back in September 2008," said SC First Bank economist Oh Suk-tae, describing the uproar in the foreign exchange dealing room of his firm. "Korea is now in the eye of the storm. Now people say that it is a 'Europe plus Korea' crisis."
South Korea has implemented several non-military retaliatory actions against the North after it officially blamed Pyongyang for attacking a warship in March, killing 46 sailors. North Korea responded by ordering its armed forces to full alert.
The foreign exchange market was the most sensitive to react. "The won-dollar rate was on its way to 1,300, were it not for the government intervention," Oh said. The government and the central bank sometimes try to stablize the exchange rate by selling or buying currency or issuing bonds. They do not usually comment on such issues, but dealers said that the government was obviously involved in Tuesday's late market recovery.
"It seems that they did it via a foreign-owned bank. In fact, while the won was appreciating (in late trading), other Asian currencies fell," said a foreign exchange dealer at a major bank, who declined to be identified.
On the KOSPI, foreigners again net sold over 580 billion won worth of shares. But a positive sign was that domestic institutions net bought almost as much.
“It seems pension and public funds bought some 300 billion won worth of shares, which shows that there is big demand around 1,550. Since last summer, the stock price has rebounded around four times from that level,” said Kim Sung-bong, chief analyst at Samsung Securities.
source: Korea Times