Subprime Woes Pull Down KOSPI Below 1,700

By Park Hyong-ki

Staff Reporter

Seoul stocks took a big dive Monday, following an overnight plunge on Wall Street on the worsening subprime crisis.

The benchmark KOSPI shed 39.89 points, or 2.33 percent, to close at 1,671.73, after staying above 1,700 for about a week. The tech-heavy Kosdaq market closed down 11.43 points, or 1.74 percent, at 644.51.

Analysts say the fall is in line with stocks' heavy beating on Wall Street as many economists in the United States fear that the credit crunch will further impact the world's largest economy going forward.

The Dow Jones Industrial Average fell 315.79, or 2.51 percent, to 12,266.39, while the S&P500 closed down 37.05, or 2.71 percent, at 1,330.63. The tech-loaded Nasdaq shed 60.09, or 2.58 percent, to close at 2,271.48.

Many economists showed concerns that the U.S. is sliding into a recession as data indicate its housing market is in a deep slump with the contagion spreading over to consumption, while financial firms are clouded by bad investments in subprime-backed securities.

According to AP, a recent survey of 259 economists affiliated with the U.S. National Association for Business Economics show 34 percent pointing to the subprime mortgage turmoil as ``the No.1 threat to the economy over the next two years.''

Against this backdrop, Dongbu Securities analyst Lim Dong-min projects investors sentiment to continuously weaken affected by the lingering financial instability in the U.S., one of the country's top export destinations.

He said the market could undergo heavy fluctuations when encountering a triple witching day, while it may get a little boost by any extra rate cuts by the Federal Reserve.

``This month, it's both positive and negative from the short-term perspective as the stock market awaits such factors in mid-March,'' said Lim.

The triple witching day, which comes four times a year, ignites heavy trading of options, futures and their underlying stocks by program traders as contracts expire, often leading to a big plunge on the market.

Also, the U.S. Fed had said it is ready to move preemptively to fight the slowing economy, hinting at another rate cut in its next meeting. Market consensus shows that the Fed might cut interest rates by 25 to 50 basis points on March 18.

However, Lim said it will be hard for Seoul stocks to make a ``complete rebound'' with just the cuts, as the outlook for corporate earnings this year looks gloomier than last year. ``Low valuations of stocks could send attractive signals to global investors, but projections of corporate balance sheets are being downgraded.''

Dongbu Securities expects the benchmark KOSPI market to fluctuate between 1,650 and 1,750 this month.

phk@koreatimes.co.kr