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COVID-19, Lime scandal pump brakes on stock rally

(EPA-Yonhap)
(EPA-Yonhap)

The COVID-19 virus entering a new phase here has put the brakes on local stock markets and the attempt for improved performance this year, along with the snowballing Lime Asset Management fiasco that has been sending shockwaves through the local brokerage industry, according to industry sources Wednesday.

The local stock market opened high this year amid heighten sentiment for an improved economic outlook. However, intensifying fears on the deadly virus have begun weighing down on investor sentiments and are leading stocks to fluctuate widely, they said.

The benchmark bourse Kospi opened higher at 2,222.51 points -- up 13.63 points, or 0.62 percent, from the previous session. It scooped up overnight losses on Wall Street, but moved downward immediately after health authorities reported 15 additional novel coronavirus infections here.

It is the biggest daily jump in confirmed cases in Korea, which led the index to fall below the mark of 2,200 points. After experiencing a roller-coaster ride, the index closed slightly higher at 2,210.34 points -- up 1.46 points, or 0.07 percent.

The tech-heavy Kosdaq also began strong at 686.89 points -- up 3.97 points, or 0.58 percent, from the previous session. The index then shed after the COVID-19 report until early afternoon, but inched up 0.27 percent to close at 684.78.

“(February’s) export prices index is expected to fall. Unless the market gains fresh growth momentum, stocks will not see a significant rally for now. To see the rally, growth momentum such as China’s reflation measures or a signal in business recovery is needed,” said Choi Yoo-june, an analyst at Shinhan Investment.

The Lime Asset Management fiasco has also saturated the market and brought dark clouds to industry prospects. The Financial Supervisory Service is slated to kick off its first on-site investigation of Lime Asset early next month. The prosecution also accelerated its investigation with individual investors in the Lime Asset funds.

Faced with a liquidity crunch, the asset manager halted cash withdrawals from one of its trade financing funds in October, freezing some 244 billion won ($205.1 million) and triggering intense backlash from investors. Banks and securities firms are also said to be in the process of taking legal action against Lime Asset for breach of contract.

Hana Financial Investment estimated the local banking sector could suffer up to 270 billion won in losses from the Lime scandal, with Shinhan Bank alone likely to lose some 228 billion won. EBEST Investment & Securities also warned that the Lime fiasco will likely escalate investor jitters and lead to tougher rules on hedge funds, having a negative impact on the whole financial sector.

By Jie Ye-eun (yeeun@heraldcorp.com)
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