Korean financial markets to face short-term jitters

By Kim Tae-gyu

Korean finance experts project that domestic financial markets will face some short-term jitters as late last week Standard & Poor's lowered the top credit rating that the United States has held for up to 70 years.

The Korea Times found Sunday that all the 11 market observers surveyed forecast downturn in the Seoul bourse, which has already seen about a 10-percent drop during the latest four sessions.

The majority think that the unprecedented S&P measure will negatively affect the global economy even though just a few expected the downgrade to substantially threaten a double dip, or another recession since the 2008 economic slump.

``To be sure, share prices here will head downwards early this week in response to the bad news, which has never been heard before. The shocks foreseen are great,’’ said Lee Jong-woo, who leads the research center at Solomon Investment & Securities.

``Chances are the economic activities of many countries will slow down to less than 2 percent, weighing heavily on export-driven Korea. But I do not expect that economic output will shrink enough to lead to a double dip.’’

Lee gained the spotlight in 2008 when he predicted the international financial tsunami and again this year after having correctly forewarned the local stock markets might plunge this summer.

The benchmark KOSPI moved between 2,100 points and 2,200 throughout 2011 while rising to record highs several times, but it lost 228.56 points between last Tuesday and Friday plummeting to 1.943.75, the lowest in six months.

Shin Young Securities analyst Kim Se-jung was somewhat optimistic, although he remained wary of some uncertainties.

``We have never seen an era when the U.S. rating was not the best. Hence, we need to see what will happen down the road when the borrowing rates of the U.S. go up,’’ Kim said.

``Yet, the U.S. has had enough liquidity to cope with the downturn and the dollar will keep its status as the key currency. Historically speaking, any downgrade of credit ratings had only a short-term influence on the economy and their long-term sway was weak.’’

However, it was not difficult to find pessimistic opinions.

``In the aftermath of the collapse of Lehman Brothers in 2008, the world did not go through drastic reforms. Instead they came up with merely makeshift steps, such as pump-prime policies,’’ said Hansung University professor Kim Sang-jo.

``It’s like a patient who refuses to get an operation, while tolerating pain with doses of morphine. It has reached the breaking point. I would say that the world runs huge risks of encountering a double dip.’’