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 won falls to 21-month low amid deepening geopolitical risks
By Lee Min-hyung
Regulators intervene in market on investors' growing woes
By Lee Min-hyung
Korea's financial markets took a heavy beating Monday, with its currency and stocks both sinking on escalating geopolitical uncertainties in Eastern Europe, after Russian troops shelled a nuclear power plant in Ukraine.
The Korean won extended a loss of 12.9 won against the U.S. dollar, closing at 1,227.1 won per dollar, the lowest level in 21 months. This is the first time since June 2020 that the exchange rate topped the 1,220 mark. The won's sharp depreciation is spawning fears that it will continue pulling up consumer prices, which are being driven up by prolonged global supply bottlenecks and oil price hikes.
The won lost its ground due to investors' growing preference for safer assets amid the prolonged armed conflict between Moscow and Kyiv, according to market analysts.
“The Korean won will remain weak, and the dollar is expected to gain more ground from a near-term perspective, in that Russia could drag out the Ukraine crisis,” NH Investment & Securities analyst Kwon Ah-min said.
Earlier, the market outlook was that the won-dollar exchange would be under downward pressure by the end of March, in line with planned monetary normalization from the U.S. and a number of other countries, but the invasion of Ukraine reduced that likelihood, according to the analyst.
“There stands an ample chance that the crisis persists for a longer period of time on the toughening sanctions against Russia and the country's unwavering hardline stance,” the analyst said.
The securities firm also revised up the target exchange rate band to as high as 1,250 won per dollar. It also expected the average exchange rate in the first quarter of 2022 to reach 1,190 won.
Foreign exchange authorities ― including the Ministry of Economy and Finance ― also intervened in the market for the first time in 16 months, Monday, on widening fears of the rising exchange rate.
“We are stepping up monitoring of whether market participants have any excessive fear sentiments,” a ministry official said.
Another concern is that the weakening local currency asserts upward pressure on consumer prices here, at a time when the prolonged global supply bottlenecks and oil price hikes are already driving up prices.
The Bank of Korea said in a recent report that prices here would be under upward pressure this year due to external uncertainties.
The Korean stock market also tumbled by more than 2 percent on the same day for a similar reason.
The benchmark KOSPI failed to defend the 2,700 mark and closed at 2,651.31 points, down 62.12 points or 2.29 percent from the previous trading day. The secondary Kosdaq also extended its loss by 2.16 percent on a selling spree of overseas and institutional investors.
Market analysts expected investors to continue avoiding risky assets due to the uncertainties overseas.
“Investors will prefer to hedge risks when making stock investments due to the geopolitical risk and soaring oil prices,” Kiwoom Securities analyst Han Ji-young said. “It makes it hard for investors to respond to the market.”