By Kim Jae-kyoung
Staff Reporter
The local financial market is undergoing a simultaneous fall in equities, bonds and currency, in what analysts dub the triple weakness, further constraining the faltering economy and fanning worries that Asia's fourth largest economy may face a sovereign rating downgrade.
The local currency, which turned bullish for a while after the won-dollar swap agreement on Oct. 30, has recently lost much ground against the U.S. dollar. The won closed at 1,450.7 won per dollar Wednesday, a dramatic setback from 1,250 won on Oct. 30.
The key index KOSPI also extended its losing streak Wednesday for seven days in a row, falling to nearly the 1,000 mark. The index closed at 1,016.82, losing more than 100 points over a week.
In addition, the bond market was in worse shape, with yields on three- and five-year treasury bonds up around 0.8 percentage points over the past one week, despite the government's series of measures to stabilize it.
Citigroup economist Oh Suk-tae said that worsening financial market conditions are expected to continue for a few weeks, citing deepening global recession, global de-leveraging and policymakers' clumsy responses.
``Evidence of a severe global recession has become clearer, and led to weakness in global equity markets and more countries reporting weak economic data,'' he said. ``Continued global de-leveraging has been resulting in significant capital outflows from Korea.''
Foreign investors have heeded the triple weakness, with their net equity selling continuing for six consecutive days starting Nov. 11. Foreign investors also continued to sell won-denominated bonds and repatriate the proceeds, hurting foreign currency and local currency liquidity here.
Policymakers' late and ineffective response is another key culprit behind the financial turmoil, which was manifested in the market response to the government's recent move to set up the bond fund.
``The bond fund plan seemed to have the opposite effect from what was intended as yields on government and corporate bonds have been showing a steady rise,'' ING Group Asia chief economist Tim Condon said.
Oh echoed the view saying, ``The central bank's proposal to directly purchase 1 trillion won of government bonds looks like too little too late.''
The central bank has decided to print money to contribute up to five trillion won to the establishment of the 10 trillion won bond market stabilization fund that the Financial Services Commission (FSC) is now trying to set up.
In addition, the central bank is highly likely to cut its policy rate again in the meeting scheduled for Dec. 11. ``We expect the central bank to cut it by 25 basis points again in December,'' Condon said.