Seoul stocks crash on fears of pandemic

KOSPI dips over 4%; local currency loses 11.9 won against dollar

By Anna J. Park

The stock market crashed Monday on an overseas investors' selling spree triggered by the growing spread of the COVID-19 outbreak amid fears it could become a pandemic.

The benchmark KOSPI closed at 1,954.77, down 4.19 percent or 85.45 points from the previous day. This was the lowest level since Aug. 29 last year, when it closed at 1,933.41. The tech-heavy Kosdaq also plunged by 4.38 percent to close at 614.60.

The local currency also collapsed losing more than 10 won against the U.S. dollar, finishing at 1,204.2 won, down 11.9 won from the previous close.

Kim Yong-goo, an analyst at Hana Financial Investment, stressed that the sudden crash in both the stock and foreign exchange markets was mainly attributed to investor fear alongside plummeting oil prices.

“Now that the coronavirus risk has changed from a regional threat to a global one, investors' psychological fear has grown immensely,” the analyst told The Korea Times.

“Investors' irrational decisions based on fear and preferences for safer assets such as bonds, as well as plummeting oil prices, have compounded the stock crash,” he added.

The crash was driven by overseas investors who dumped local shares and scrambled for bonds to hedge against any economic shock from the coronavirus spread. The selloff was also sparked by a plunge in oil prices following news that Saudi Arabia had cut its official selling price.

Overseas investors' net sold shares worth 1.3 trillion won ($1.07 billion); while institutional investors also dumped shares worth 40.7 billion won, and individual investors recorded net purchases of 1.27 trillion won.

Risk aversion is in full swing throughout Asia on fears that the economic crisis created by the rapid spread of the coronavirus is spreading throughout the world.

Japan's Nikkei also plunged to 19,698.76 at the close Monday, down 5.07 percent from the previous day, and the first time in 14 months that the index fell under the 20,000 mark.

China's Shanghai Composite Index also fell by 2.90 percent, as of 14:50 p.m. Monday. Hong Kong's Hangseng followed suit, dipping 3.73 percent as of 14:55 p.m.

Market watchers say the market turbulence throughout Asia shows risks from the epidemic have reached a critical point globally, and the judgment of the market should not be limited to one market.

Kim said the fundamental resolution of the current crisis was unlikely to come until a vaccine for COVID-19 was developed. He pointed out that easing monetary policies as well as globally concerted efforts would help, but won't resolve overgrown investor fear.

“The ultimate solution to the situation will be the development of a vaccine for COVID-19. The vaccine could be the trigger that calms people's unreasonable fear,” the analyst said.

“However, market restoration won't be easy. Easing monetary policies and providing liquidity could be a chance for a rebound, but the current extreme volatility is likely to continue for the time being,” he added.