Black Friday

KOSPI tumbles below 1,700; won reverses trend to bounce back

By Kim Tong-hyung

Korean stocks continued what many fear to be a free fall Friday with the benchmark Korea Composite Stock Price Index (KOSPI) dipping below the 1,700 mark for the first time in more than a month.

After sinking to its lowest level in a year Thursday, the value of the Korean won seemed set for a fifth-straight day of decline before authorities apparently stepped in at the last minute to stop the bleeding.

The grim economic outlook from the International Monetary Fund (IMF) and the World Bank, which followed gloomy comments by the U.S. Federal Reserve a day earlier, has driven down world stocks, and the losses in Korea and other major Asian economies have been particularly dramatic.

The KOSPI’s final line of 1,697.44 represented a daily drop of 5.73 percent, or 103.11 points, as investors continued to be jittery about the possibility of another full-blown downturn for the global economy.

The won rose 1.1 percent to close at 1,167.31 to the dollar, reversing the losses of earlier hours to gain the most in nearly four months, after finance ministry officials said they were ready to intervene to support the currency.

The won-dollar exchange rate threatened to touch 1,200 at one point Friday as the heightened uncertainties surrounding the global economy continued to prompt investors to sell off the risk-sensitive currency.

The credit default swaps (CDS) premium on Korea's five-year foreign currency bonds, which reflects the cost of hedging credit risks on sovereign debt, closed at 206 basis points Thursday to mark a 28-month high to further underline the worries over Korea’s financial stability.

Meanwhile, the Ministry of Strategy and Finance said it will closely monitor financial market conditions, calling the recent currency market reaction "excessive."

After holding a policy consultation meeting, the ministry and the Bank of Korea also shared the view that they need to take immediate action in response to any "irregular movement" in the currency market.

"We will beef up market monitoring through close cooperation between the two agencies, along with other financial authorities," the ministry said in an emailed statement.