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S. Korea's financial markets remain relatively resilient against Bernanke shock

South Korea's financial markets have remained relatively resilient compared with other major emerging countries in the face of heightened volatility sparked by worries that the U.S. might scale back its economy stimulus efforts, the finance ministry said Sunday.
The financial markets here, including stocks and foreign exchange rates, were rattled on Thursday and Friday after U.S. Fed Chairman Ben Bernanke made remarks that Washington could taper its bond-buying program that has kept its interest rates at record lows and helped buoy its economy.
The volatility in Korea, however, had remained relatively small compared with other emerging countries such as Brazil, Russia and Mexico over the past couple of days and there was little capital flight out of its bond market, according to the ministry.
On Wednesday just before Bernanke's remarks, the won traded at 1,130.8 against the U.S. dollar, but the exchange rates rose to 1,154.7 on Friday. The value of the Korean currency declined 2.07 percent against the greenback over the cited period.
The pace of depreciation is still smaller than Brazil, Russia, Mexico and Australia, which saw their currencies fall 3.45 percent, 3.18 percent, 2.94 percent and 2.77 percent over the same period, the ministry said.
Just a few countries suffered smaller depreciations that include Indonesia and India whose currencies declined 0.25 percent and 1.16 percent.
Things are not quite different in stock markets as well.
Compared with Wednesday's close, South Korea's benchmark KOSPI had plunged 3.47 percent in the following two days. That drop is still less steep than Indonesia, Russia and Mexico whose stock prices dropped 6.75 percent, 5.38 percent and 4.92 percent, respectively, the ministry said.
Based on those figures, the Seoul government thinks that the Korean markets remained relatively resilient against the heightened global volatility, which was sparked by worries that money could flow out of emerging countries in droves if Washington goes ahead with its plan to reduce and eventually stop its bond-buying program.
"At a time when many countries are being affected by the global shock, our economy is sustaining relatively less damage compared with other emerging countries," a government official said on condition of anonymity. "The level of market sentiment and anxiety appears to stay within the range of what we expected."
The bond market has not been affected much either, with no significant foreign capital outflows.
As of Thursday, the amount of outstanding won-denominated bonds held by foreign investors stood at 100.2 trillion won (US$86.8 billion). This month, it has increased a net 1.6 trillion won.  

"There is indeed a higher level of anxiety about possible capital outflows in the wake of the Bernanke's remarks," said Choi Hee-nam, the head of the finance ministry's international financial bureau.
"However, as the figures on the bond market indicate, we have a quite different situation compared with emerging countries going through high volatility from the perspective of economic fundamentals."

The government still remains on high alert against possible massive outflows of money from its financial markets.    

In an emergency meeting to review the current financial market situations, the government said that it will take measures needed to stem market anxiety from deepening further.
The meeting was attended by high-ranking officials from the finance ministry, Financial Services Commission,  Financial Supervisory Service and Bank of Korea.
"We will step up our monitoring on international financial markets and capital flows, while at the same time working hard to actively explain our economy so as not to cause any misunderstanding among investors," said Vice Finance Minister Choo Kyung-ho, who presided over the meeting.
"In particular, we will keep tabs on foreign capital markets on a daily basis and intensify checks on liquidity situations at banks through stress tests. We will take proactive market stabilization steps in case exchange rates suffer steep fluctuations caused by speculative investment or herd behavior and also flexibly adjust the amount of liquidity by reducing issuance of long-term bonds in July."  (Yonhap News)