Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Korean stocks plunge amid escalating Russia conflict
Militants of the self-proclaimed Donetsk People's Republic stand outside a military mobilization point in the separatist-controlled city of Donetsk, Ukraine, Wednesday. Reuters-Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korean stocks took a serious hit Thursday in the aftermath of Wall Street's overnight fall, sparked by heightened geopolitical risks between Russia and Ukraine.
Market analysts expect that Korean stock markets will face an additional downward adjustment, as it is feared the global economy could slow down due to growing external uncertainties.
The benchmark KOSPI closed at 2,648.68, a drop of 2.61 percent from the previous day, on a selling spree of overseas and institutional investors, with fear reaching its peak that the two countries are on the brink of war. The secondary Kosdaq also extended more than 3 percent in losses on the same day.
“U.S. stocks fell after Ukraine imposed a state of emergency and called up reservists amid the growing likelihood of armed conflict with Russia,” Mirae Asset Securities analyst Seo Sang-young said.
“This increases the likelihood for the global economy to face a slowdown, which poses a burden on export-reliant Korean stocks.”
Hi Investment & Securities analyst Park Sang-hyun noted in a report that sluggish exports are not necessarily posing downward pressure on domestic stocks.
“Korean exports' growth rate has been on the decline after reaching a peak last May. There stands a possibility that the KOSPI may extend its sluggish performance at a time when exports growth is slowing down,” he noted. But he also cited data showing that the two factors are not necessarily co-related.
“Back in 2010, the KOSPI had been on the rise even after the export growth rate hit a high, as the total amount of exports increased gradually despite the growth slowdown. This is the same for the status quo, so our view is that it is hard to come to an abrupt conclusion that the sluggish exports growth will result in a stock fall here.”
Despite a somewhat optimistic outlook, investors here and abroad appear to have lost positive sentiment on local stocks, as shown by the recent plunge.
With the main bourse failing to defend the 2,700-mark, fears also heightened that stock markets may soon plunge below this year's lows. Few other optimistic signs are being detected to help rev up the sagging stock performance ahead of the U.S. Federal Reserve's planned rate hike slated for March.
Overseas investors are also feared to engage in a mass selling spree of Korean stocks following a possible interest rate hike by the Fed of as much as 50 basis points next month.
Even if the Bank of Korea froze its key rate at 1.25 percent on Thursday, chances are that the Korean central bank will raise it by 25 basis points to 1.5 percent sometime in April and May to be in line with the Fed's monetary tightening.
Experts argue that this move will make Korean stocks less attractive, as investors prefer safer assets amid monetary uncertainty.
The Russia-Ukraine conflict, however, came as a boon to some domestic energy stocks amid fears over possible energy supply disruptions around the world, as the U.S. and its allies are on track to impose sanctions on Russia.
Shares of Daesung Energy, a natural gas distributor, reported double-digit growth of more than 20 percent on Thursday.