Financial authorities keep eye on currency depreciation as it could trigger inflation

A currency trader seen in the foreign exchange dealing room of KEB Hana Bank's headquarters in Seoul on Wednesday. (Yonhap)
A currency trader seen in the foreign exchange dealing room of KEB Hana Bank's headquarters in Seoul on Wednesday. (Yonhap)

Korean stocks ended down on Wednesday, with the benchmark Kospi and secondary Kosdaq giving back early gains following the detention of impeached President Yoon Suk Yeol in the morning.

The Kospi closed at 2,496.81 points, down 0.02 percent from the previous close, while the Kosdaq declined by 0.90 percent to finish at 711.61 points.

The main bourse failed to maintain the 2,500 level it touched in the morning trading despite the expectation that the detention of Yoon would reduce investors' negative sentiment about the political turmoil here since the suspended president's botched imposition of martial law.

Investigators from the police and the Corruption Investigation Office for High-ranking Officials began the process of entering the presidential residence at 5 a.m., ultimately arrested him five hours later at 10:30 a.m. It was the joint probe team's second attempt to detain Yoon for questioning over his short-lived declaration of martial law on Dec. 3.

On the flip side, foreign investors remained net buyers during the day. They bought a net 49.2 billion won worth of listed stocks while retail investors scooped up 1200 billion won in shares and institutions sold shares worth 256.2 billion won, dragging down the board overall.

Foreign investors began to return to the Korean stock market this month.

In December, foreign investors were found to have taken out nearly 5.7 trillion won from Korea's stock and bond markets, according to the Bank of Korea on Wednesday.

In the stock market alone, foreign investors sold more than 2.58 billion won worth of Korean stocks, marking a net outflow for the fifth consecutive month since August last year.

“Amid continued concerns about the growth potential of domestic semiconductor companies, the net outflow of stock funds continued due to the domestic political uncertainty and concerns about delays in global interest rate cuts,” the central bank said.

As of 5 p.m., the Korean won was trading at 1,460.80 won per US dollar, up 0.01 percent from the previous session.

The combination of a strong US dollar and the ongoing political turmoil here have caused the sharp fall of the Korean currency.

The won fell to 1,430 won against the US dollar on Dec. 9, marking the lowest level in over two years, as Korea's political crisis deepened.

Even after the National Assembly's passage of the impeachment bill against Yoon on Dec. 14, uncertainty has remained surrounding the judicial process and investigations into charges against him.

The won then plunged to 1,480 won immediately after the National Assembly passed a bill to impeach then acting President and Prime Minister Han Duck-soo on Dec. 27.

“Stabilization of the won-dollar exchange rate is the key (to the economy), and it is expected that the Kospi will continue to stay at the current range,” according to Kim Ji-won, an analyst at KB Securities. While Yoon's arrest eased some of the uncertainty, the Korean stock market is also reflecting concerns ahead of the announcement of the US Consumer Price Index and the start of US President-elect Donald Trump’s term, he added.

The sharp fall of the Korean won raised the price of Korea's imported products by 2.4 percent in December, which is likely to put upward pressure on consumer prices, BOK data showed Wednesday.

The Import Price Index has risen for three consecutive months since October last year. The December increase rate also marked the highest in eight months since April.

“As of January this year, the value of the won has weakened against the dollar compared to the previous month’s average, and international oil prices have also moderately risen,” said Lee Moon-hee, head of the price statistics team at the BOK.

“The exchange rate is expected to act as a factor in the rise (of import prices) in January as well, but we will have to wait a little longer due to the uncertainty in domestic and international conditions.”