Seoul stocks ended higher Wednesday as foreign investors returned to their buying mode with concerns over Brexit easing amid expansionary measures worldwide.
The benchmark KOSPI and the Korean currency gained along with the British pound after days of volatility since the U.K.’s vote to leave the European Union, as the market worldwide sees Brexit more as a political crisis than a financial crisis.
The benchmark equity index closed at 1956.36 up 1.04 percent on Wednesday, with the won-dollar exchange decreasing 11.1 won at 1160.2 won.
With governments and central banks the world over pledging liquidity support in the wake of Brexit, analysts say the latest issue in the Eurozone is not likely to trigger a financial panic or sell-offs.
Former U.S. Federal Reserve chairman Ben Bernanke, however, said the global economy will be affected as the cost of the U.K. leaving the European Union outweighs the benefits, even though uncertainty will naturally “dissipate” in the long term.
“The biggest risks to financial stability at this point appear to be political – specifically, the risk of further defections or breakdown in the European Union – rather than economic,” Bernanke said in his blog for U.S. think tank Brookings Institution.
“A financial crisis seems quite unlikely at this point. Central banks are monitoring the funding and financial conditions of banks, and so far serious problems have not emerged.”
The Korean government also noted that Brexit would not lead to a financial crisis equivalent to the one following the collapse of Lehman Brothers, while proposing a fiscal stimulus worth 20 trillion won ($17 billion) in the second half of this year.
The Finance Ministry said that it will spend 10 trillion won more with a focus on creating jobs for the young as the Korean economy is facing prolonged low growth on expectations of higher unemployment due to corporate restructuring.
“Uncertainties still loom large in the latter half of this year considering that the U.S. and Europe could readjust their monetary policies following Brexit last week,” Finance Minister Yoo Il-ho said in a briefing to a National Assembly committee.
The market has calmed a bit, but is a long way from being stabilized given that corporate restructuring will further take a toll on jobs and consumption in the second half, the Finance Ministry noted in a report submitted to the National Assembly.
Analysts say Korea’s extra spending included in its expansionary policy will help the country to manage internal and external risks.
“We forecast a limited effect of Brexit on the Korean economy considering Korea’s risk management capability and expansionary fiscal policy,” Standard Chartered said in its global research report.
“The government is most likely to preemptively carry out its policy (in the third quarter) as the market will see negative effects from Brexit in the short term.”
By Park Hyong-ki (firstname.lastname@example.org)