W100 tril. aid package set for economic stimulus

President Moon Jae-in presides over the second session of the emergency economic council meeting at Cheong Wa Dae in Seoul, Tuesday. / Yonhap

Stocks, won soar on massive rescue plans worldwide

By Park Jae-hyuk

The government announced a 100 trillion won ($79 billion) economic rescue package Tuesday in a desperate bid to protect companies hit by the fallout from the coronavirus pandemic and prevent the concurrent economic turmoil from escalating into a financial crisis.

The amount, which was agreed upon at the second meeting of the Emergency Economic Council (EEC) chaired by President Moon Jae-in, was double that introduced at the previous session last week.

“This emergency funding is intended to support both prime and sub-prime companies, including firms engaging in key industries, in addition to small business owners,” President Moon said. “The latest measures include large-scale financial support which will stabilize the credit-crunched corporate bond market and help deal with the unstable stock market.”

The Financial Services Commission (FSC) said at a following briefing that 48 trillion won will be used to stabilize the financial market.

The remaining 52 trillion won will be used to supply liquidity to domestic businesses ― including large companies ― through special loans at lower interest rates and government-backed guarantee programs.

According to the financial regulator, further funds of 20 trillion won and 10.7 trillion won, respectively, will be raised separately to stabilize the bond and stock markets.

The size of the bond market stabilization fund is double that created during the 2008 global financial crisis, and was put into operation immediately.

The stock market stabilization fund, which is 20 times larger than that of 2008, will be injected into the market starting early April.

The FSC also said an additional 7 trillion won will be used to stabilize the call market as transactions of commercial papers have been sluggish since the outbreak of the COVID-19 pandemic. The call market stabilization measures include a supply of 5 trillion won in liquidity for brokerage houses.

In response to the credit-crunched corporate bond market, which is facing a maturity of corporate bonds collectively worth a record-high 6.5 trillion won in April, the financial authorities came up with a policy financing package worth 4.1 trillion won.

This is separate from the issuance of primary collateralized bond obligations (P-CBOs) worth 6.7 trillion won, which was proposed at the previous EEC meeting.

In the recent meeting, a “prompt undertaking of corporate bonds” worth 2.2 trillion won was proposed. This will help companies reduce risks as the state-run Korea Development Bank will take over 80 percent of bonds on the verge of maturity, the FSC said.

“Monitoring the overall trend of the financial market, we will take countermeasures so that individual market sectors do not have a knock on negative impact on another,” FSC Chairman Eun Sung-soo said.

The policy measures come a day after the United States Federal Reserve announced an “unlimited quantitative easing,” which includes a large purchase of government-backed debt and corporate bonds, including the riskiest “investment-grade” debt.

The U.S. central bank's measures, however, were not effective enough to prevent the Dow Jones Industrial Average falling 3.04 percent to 18,591.93, the lowest since November 2016. The S&P 500 also dropped 2.93 percent to 2,237.40 and the tech-heavy Nasdaq closed at 6,860.67, down 0.27 percent, despite the aggressive moves.

Contrary to these falls, both Korean stocks and the currency bounced back significantly Tuesday, leading to the activation of sidecars against stock purchases for both the benchmark KOSPI and the tech-heavy Kosdaq markets.

The KOSPI closed at 1,609.97, up 127.51 points or 8.6 percent from the previous close. The secondary Kosdaq market also soared by 36.64 points or 8.26 percent to finish at 480.40.

In the main bourse, foreign investors extended its selling streak for the 14th straight day with a net selling of 83.8 billion won. Institutional investors led the market rebound recording net buying of 503.3 billion won, while retail investors net sold 461.5 billion won.

The local currency regained most of the ground it lost against the U.S. dollar a day ago, finishing at 1,249.6 won per dollar, up 16.9 won from Monday when it lost 20 won.