Shares, currency lose ground on Fed stimulus cut

By Korea Herald
  • Published : Feb 3, 2014 - 20:03
  • Updated : Feb 3, 2014 - 20:03
Foreign currency dealers in the dealing room of Korea Exchange Bank headquarters calculate the won-dollar exchange rate and the Korea Composite Stock Price Index in Seoul on Monday. The won-dollar exchange rate jumped to 1,084.5 won while the KOSPI closed at 1,919.96, 1.09 percent lower than the previous trading day. (Yonhap)

South Korean stocks dipped 1.09 percent on Monday following the U.S. Fed’s scaling back of its bond purchases, which roiled the global financial market last week, analysts said. The local currency plunged against the U.S. dollar.

The benchmark Korea Composite Stock Price Index shed 21.19 points to 1,919.96. Trading volume was moderate at 2.26 million shares worth 3.9 trillion won ($3.59 billion) with losers outpacing gainers 516 to 302.

The Seoul financial market had been closed since Thursday for the Lunar New Year holiday.

The Fed on Wednesday (U.S. time) announced an additional $10 billion cut in its bond-purchasing stimulus, sending a ripple effect to the global financial market. The stimulus cut also sent some currencies of emerging markets nosediving.

“Investors are worrying about emerging markets that they believe will suffer capital outflows following the Fed’s tapering,” said Park Sang-hyun, an analyst at HI Investment & Securities.

Adding to the uncertainties, China reported a weaker-than-expected economic reading with its purchasing managers’ index dipping to a six-month low in January. China is South Korea’s largest export destination.

Most big cap shares traded lower with market bellwether Samsung Electronics falling 0.62 percent to close at 1,272,000 won.

LG Electronics tumbled 3.48 percent to end at 63,800 won after Chinese tech firm Lenovo Group said last week it would buy Google Inc.’s Motorola Mobility handset unit, signaling stiffer competition for the South Korean mobile phone maker in the global smarpthone market.

Shipbuilders closed in the negative terrain with Hyundai Heavy Industries declining 1.78 percent to end at 220,500 won and Daewoo Shipbuilding & Marine Engineering falling 4.93 percent to close at 32,800 won.

But some defensive shares closed higher. Naver, the operator of the country’s top Internet portal, gained 0.15 percent to end at 676,000 won on expectations that its revenue would be better than expected. Last week, Facebook, the world’s largest social network service, reported stronger-than-expected profits for the fourth quarter on a growth in its mobile advertising revenue.

Telecom operators such as KT Corp. closed higher. KT added 0.16 percent to close at 30,850 won, and LG Uplus also climbed 0.46 percent to 11,000 won.

The local currency ended at 1,084.50 won to the greenback, down 14.1 won from last Wednesday’s close as foreign investors continued to offload local shares.

The South Korean currency fell by the most in more than seven months against the U.S. dollar. It was the biggest fall since June 20, 2013, when the local currency fell by 14.90 won per the dollar.

The won fell to as low as 1,085.30 per the dollar at one point as currency volatility rose.

“The dollar gained ground, aided by the Fed’s stimulus cut and emerging market jitters,” said Jeon Seung-ji, a currency analyst at Samsung Futures Co. “The won’s weakness increased as foreign investors unloaded stocks.”

The Fed said last week it will stay on course by reducing monthly asset purchases to US$65 billion starting this month, citing the improvement in the U.S. economy. In December, the Fed decided to start tapering the quantitative easing from $85 billion to $75 billion in January.

The Fed’s move has sparked concerns about capital outflows from emerging markets, which are vulnerable to volatile cross-border capital flows.

The benchmark Korea Composite Stock Price Index (KOSPI) fell 1.09 percent to end at 1,919.96. Foreign investors sold a net 418.9 billion won worth of local stocks on the main bourse. The Korean government said that it will closely monitor the local financial markets as jitters in emerging countries like

Argentina and Turkey are feared to spread into some eastern European countries.

The government said it is too early to say whether the market unrest may spread to eastern Europe or other Asian nations but that it will take actions if necessary.

Mindful of possible expansion of risks, the financial watchdog checked local banks’ foreign currency liquidity conditions earlier in the day.

Experts said that South Korea is widely seen as sound as it logged a current account surplus run for the 23rd straight month in December. Its foreign exchange reserves stood at a record $346.46 billion as of the end of December.

“As emerging markets are still unstable, there is a possibility that the won may further weaken per the dollar,” Jeon said. “But it would be difficult to envision the won falling below the 1,100 per the dollar level.” (Yonhap)