By Park Hyong-ki
Staff Reporter
Seoul stocks dropped on panic selling Tuesday following the collapse of Lehman Brothers, once the fourth largest investment bank on Wall Street.
Lehman's bankruptcy forced both the stock and foreign exchange markets to record lows, forcing market operators to suspend stock trading briefly during an intra-day session.
The benchmark KOSPI plummeted 90.17 points or 6.1% at 1,387.75, the lowest since March 5, 2007. The tech-heavy Kosdaq market also shed 37.62 or 8.06% at 429.29.
A foreign selling spree further spurred the won to weaken against the U.S. dollar, falling 50.9 won to 1,160 won to the greenback, the lowest close in over four years. The won has shed over 20 percent against the U.S. dollar this year.
Foreign investors, whose equity investment accounts for 31 percent of market capitalization, dumped Seoul stocks worth over 600 billion won, boosting the demand for dollars. Retail investors also joined in and unloaded shares worth some 260 billion won. Institutional investors, including the pension fund and investment management companies, purchased stocks worth 775 billion won on programmed buying, according to the Korea Exchange.
With massive sell-offs, the market cap of the KOSPI and the Kosdaq lost over 51 trillion won closing at 770.5 trillion won.
The steep fall on the Seoul markets follows an overnight loss on Wall Street where the Dow Jones Industrial tumbled more than 500 points, the worst since the September terrorist attacks in 2001. Korean markets were closed Monday for the Chuseok holiday.
``Lehman's bankruptcy has upended financial markets, with the dollar and stock futures sharply lower on the news,'' said Mark Zandi, chief economist at Moody's Economy.com, adding ``investors are worried that the bankruptcy will set off a chain of other financial meltdowns.''
Wall Street was shaken by Lehman Brothers, which filed for bankruptcy Monday after the U.S. Federal Reserve declined to bail out the subprime-stricken investment bank.
Meanwhile, the Bank of America agreed to save Merrill Lynch from its mortgage defaults by taking over the investment bank, while insurer AIG is also on the verge of collapse on credit woes.
Market watchers did not rule out the possibility of the won further weakening against the dollar, and of a prolonged bearish run on the stock market.
``Financial uncertainty in the U.S. will continue to pose a problem on Seoul markets,'' said Kim Jun-ki an analyst of SK Securities.
phk@koreatimes.co.kr