KOSPI Plunges 3% on Concern Over Real Economy
By Yoon Ja-young
Staff Reporter
The stock market dipped on concerns that troubles in the financial sector have started shaking the real economy. The local currency also plunged against the greenback as the stock market fell and there seems to be no definite solution to the lack of dollar liquidity with lenders.
The KOSPI closed at 1,088.44, down 35.42 points, or 3.15 percent, from the previous day, as the junior Kosdaq market fell 11.69 points, or 3.61 percent, to 311.55.
It once lost nearly seven percent during the day, after starting the morning session with a deep fall following an overnight plunge on Wall Street. New York stocks lost nearly five percent in the previous day as a rescue plan shifted to consumer credit from mortgage assets.
The sidecar mechanism was activated to halt trading for five minutes on both the main bourse and the junior stock market due to the freefall.
In the afternoon session, however, the index headed up following intervention by pension funds.
Analysts said that now concern has shifted to the real economy. While financial sector problems may be solved by a massive injection of money, it is hard to come up with an answer once the economy enters the vicious circle of an overall slowdown in consumption, job cuts and the closing of businesses, they added.
``The concern over the manufacturing industry is growing following the announcement of third-quarter performances and outlooks,'' said SK Securities portfolio analyst Won Jong-hyuk.
He said the weakening of the corporate sector deters the real economy from benefiting from the interest rate cut. ``It seems recovery is improbable in the short-term,'' he said. ``Since it is difficult to expect consumption to gain due to unemployment and low corporate investment, the role of government, such as in financial spending, is crucial.''
The effect of the currency swap deal seems to be over on the foreign exchange market. The won closed at 1,391.5 won per dollar Thursday, losing 32 won from the previous day.
The won started trading at 1,400 won per dollar, and once hit 1,405 won. It later stabilized somewhat as exporters sold dollars.
The local currency fell against the dollar in October but sharply rebounded following the currency swap deal between Korea and the United States. However, the rate has returned to the level sustained before the currency swap deal on concerns that local banks' foreign currency liquidity hasn't improved.
Global rating agencies' downgrading of the outlook on banks' credit ratings is adding to the difficulties in raising money abroad.