Lack of ceasefire clarity fuels risk aversion, dollar's strength
South Korean shares fell sharply Thursday after US President Donald Trump renewed threats against Iran in a closely watched war address, prompting a temporary trading curb on both the benchmark Kospi and secondary Kosdaq. The Korean won also weakened against the dollar amid heightened risk aversion.
The Kospi closed at 5,234.05, down 244.65 points, or 4.47 percent, from the previous session. Amid the sharp decline, a sell-side sidecar was triggered on the main bourse at 2:46 p.m., halting programmed sell orders for five minutes.
A sidecar is activated when the Kospi 200 Futures index moves 5 percent or more for at least one minute. At the time of the activation, the index had fallen 5.04 percent on-session.
The index opened 1.33 percent higher at 5,551.69, buoyed by rising hopes for an end to the conflict ahead of Trump's public address. It briefly surpassed 5,570 points in early trading but soon reversed course, falling sharply during Trump’s speech.
Retail investors were the only net buyers on the bourse, purchasing shares amounting to 1.21 trillion won ($798 million). Foreign investors and institutional investors offloaded 136.9 billion won and 1.45 trillion won, respectively.
Semiconductor heavyweights also declined across the board, along with other large-cap shares.
Shares of Samsung Electronics closed at 178,400 won, down 5.91 percent. SK hynix also fell 7.05 percent to 830,000 won. The shares had opened with gains but soon reversed course as Trump gave his speech and widened their losses.
Hyundai Motor and LG Energy Solution shed 4.61 percent and 0.61 percent, respectively.
The tech-heavy Kosdaq wrapped up at 1,056.34, down 59.84 points, or 5.36 percent. The steep decline also prompted a sell-side sidecar on the board at 2:34 p.m.
The sharp sell-off across both markets came after buy-side sidecars the previous day, underscoring heightened market volatility.
The local currency lost strength against the greenback, failing to extend its appreciation from the previous day.
The won settled at 1,519.7 at the close of onshore daytime trading, weakening by 18.4 won from the previous session.
Though the won had gained 28.8 per dollar during daytime trading on the previous day, it retreated to the 1,520 per dollar level as the greenback regained strength on safe-haven demand, with Trump not presenting a clear timeline for a ceasefire.
Amid the won’s persistent decline, high-profile government officials were keen on highlighting the significance of Korea’s inclusion in the FTSE World Government Bond Index, which officially took effect Wednesday.
More than 4.4 trillion won in foreign capital has flowed into Korea's bond market between Monday and Wednesday, as the country began its phased inclusion in the key bond index, according to financial authorities.
“Capital inflows, led primarily by Japanese investors, have been proceeding smoothly and are expected to contribute to stability in both the bond and foreign exchange markets,” Finance Minister Koo Yun-cheol said at a macroeconomic policy meeting Thursday. Attendees included Bank of Korea Gov. Rhee Chang-yong and the heads of the Financial Services Commission and Financial Supervisory Service.
Kim Yong-beom, chief secretary for national policy, said the WGBI inclusion would have a meaningful impact in the medium to long term.
“The phased inclusion in the WGBI is a structural factor that could attract sustained foreign inflows into the bond market and help stabilize supply and demand in the foreign exchange market,” Kim wrote on social media.
“While it may not ease near-term pressure on the won, it is expected to reduce volatility and strengthen confidence in won-denominated assets.”
silverstar@heraldcorp.com
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