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S. Korea’s stock market retreats amid China’s Evergrande crisis

An employee reads an article on China’s Evergrande debt crisis at Hana Bank’s dealing room in Seoul on Thursday. South Korean authorities said they have been monitoring risks stemming from Evergrande’s intense liquidity crisis as Beijing tightened regulations in its property sector to rein in excessive debt and speculation in recent months. (Yonhap)
An employee reads an article on China’s Evergrande debt crisis at Hana Bank’s dealing room in Seoul on Thursday. South Korean authorities said they have been monitoring risks stemming from Evergrande’s intense liquidity crisis as Beijing tightened regulations in its property sector to rein in excessive debt and speculation in recent months. (Yonhap)
South Korea’s stock market retreated Thursday, hit by the growing debt crisis faced by Evergrande Group, one of China’s biggest property developers, as financial authorities vowed to closely monitor the situation’s impact on the market.

The benchmark Kospi lost 12.93 points, or 0.41 percent, to close at 3,127.58 points. The secondary tech-heavy Kosdaq shed 9.86 points or 0.94 percent to close at 1,036.26.

Trading volume was moderate at about 612 million shares worth some 13.8 trillion won ($11.7 billion), with losers outnumbering gainers 715 to 178.

Foreigners bought a net 559 billion won, while retail investors offloaded 310 billion won worth of stocks. Institutions sold a net 227 billion won.

Government officials said they were monitoring the situation, though onlookers said the dip in stocks was softer than expected.

“During the Chuseok holidays, the concerns surrounding Evergrande’s possible default has led to increased volatilities in the global financial market,” First Vice Finance Minister Lee Eog-won said during a macroeconomic meeting with related officials.

“We need to closely monitor risks coming from developing economies as well, to counter the risks.”

Lee expressed concerns that risks such as the Evergrande debt crisis could send abrupt “market jitters” through the global financial market, with the economies on track to normalizing monetary policies and in the process of “deleveraging.”

The nation’s central bank echoed Lee’s remarks, saying that while it was unlikely that the Evergrande debacle would grow into a “systematic risk” in the global financial market, market volatilities could still expand depending on the development of the crisis.

The Bank of Korea called the crisis “a manifestation of property-related debt accumulation,” apparently drawing parallels to the overheated housing market at home.

Evergrande has been facing intense liquidity crisis in recent months, as Beijing tightened regulations in its property sector to rein in excessive debt and speculation. The company, which borrowed to finance a slew of businesses, found itself struggling to meet its debt obligations.

The concerns come as Evergrande faces $83.5 million in dollar-bond interest payments due Thursday on a $2 billion offshore bond. Additional payments are due next week, with a $47.5 million dollar-bond interest payment due.

“If Evergrande officially defaults, there is a possibility that it would bring about a systematic risk to parts of the Chinese financial market,” Lee Kyung-min, an analyst at Daishin Securities said.

“Amid controversies surrounding China’s real estate bubble, there are concerns that it could trigger a series of defaults among real estate firms and the second Lehman Brothers crisis in China,” he added.

But Lee added that despite the existing risks, it is unlikely that the current crisis would blow up to a systematic risk and he believes the Chinese government will eventually intervene up to a certain level.

Another analyst said the Evergrande debacle will have a limited impact on the nation’s financial market, pointing to Korean paper, which is a foreign currency debt issued by South Korean entities abroad.

“There was a limited impact from the Evergrande debt crisis on the Korean paper market with the debt being relatively free from default issues,” Kim Jun-yong, an analyst at NH Securities & Investment said.

(mkjung@heraldcorp.com)
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