Kwon slams foreign brokerages over gloomy reports

By Kang Seung-woo

The chief of the Financial Supervisory Service (FSS) Friday called foreign brokerages’ recent negative reports on the Korean economy “an arbitrary decision.”

He also said that the nation’s financial watchdog is considering lifting a suspension of short selling at the Seoul bureau earlier than scheduled if the market shows signs of stabilization.

“A few foreign brokerages have issued reports saying that if the current debt crisis in Europe worsens, Korea will be most exposed to the crisis in terms of its ability to repay external debts among Asian countries. But (I think) those reports did not come from objective criteria,” FSS Governor Kwon Hyouk-se said at a breakfast meeting with heads of foreign brokerage houses, asset managers and banks, including Citibank Korea, JP Morgan Chase and Goldman Sachs.

Recently, Nomura Securities and Morgan Stanley issued reports on the Korean economy and each estimated that Asia’s fourth-largest economy will be hit hardest by the eurozone’s sovereign debt crisis, unless the financial turmoil abates.

He told the foreign financial institutions that Korean lenders have no problems with their foreign currency liquidity conditions as they have greatly improved.

“Given the local economy’s fundamentals, the impact of external uncertainties is likely to be limited on the South Korean economy,” Kwon said, citing the country’s heightened risk management capacity and strong export competitiveness.

The Governor added that global credit ratings agencies including Standard and Poor’s are positive about Korea’s economy, with the International Monetary Fund (IMF) saying that the global financial uncertainties will limitedly affect the nation, citing its solid financial fundamentals.

“Taking Korea’s real economy and positive overseas evaluations of the country into consideration, the effect on the country’s economy will be limited,” Kwon said.

He also urged the heads of foreign financial firms to join the government’s efforts to soothe markets, saying the roles of institutional investors are important.

Meanwhile, Kwon said that it is possible the FSS will rescind its ban on short selling of all local stocks listed on the main and the secondary tech-heavy KOSDAQ markets earlier than originally expected. It imposed a three-month suspension Tuesday because foreigners’ short selling quadrupled to around a daily average of 400 billion won ($371 million), posing risks to the local market's stability. Short selling is an investment strategy that bets on the grim outlook of stocks.

“If market uneasiness fades, there is no reason to block short selling. We will review lifting the ban earlier than expected if the market stabilizes,” he said.