Stocks plunge, President Moon asks to apply 'unprecedented steps'

Finance Minister Hong Nam-ki, left, presides over an emergency meeting with top financial officials in Seoul, Friday, when local shares dropped sharply amid pandemic fears. Courtesy of Ministry of Economy and Finance

President Moon orders financial authorities to use all 'available cards'

By Lee Min-hyung

The Korea Exchange (KRX) temporarily halted stock trading once again Friday in reaction to the sharp downturn amid ever-growing fears over the coronavirus pandemic.

President Moon Jae-in held a special meeting with top economy and finance bureaucrats, including Finance Minister Hong Nam-ki, Bank of Korea (BOK) Governor Lee Ju-yeol and Financial Services Commission (FSC) Chairman Eun Sung-soo. The President urged them to take “unprecedented” steps to proactively deal with the growing pandemic fears, as the local economy has been declared in “emergency mode” due to the ongoing spread of COVID-19.

“It is time to do unprecedented work, as the pandemic is special and different from other virus epidemics ― such as MERS and SARS,” Moon said, according to Cheong Wa Dae press pool reports.

The market crash came a day after the KOSPI and secondary Kosdaq plummeted Thursday when the World Health Organization declared the coronavirus outbreak a global pandemic.

The main bourse started with a 6 percent drop before closing at 1771.44, down 3.43 percent. At one time, it fell below the 1,700-mark. The tech-heavy secondary market also suffered a painful opening and fell 12 percent at one time Friday morning. It closed at 524, down 7 percent from the previous day.

In response, the securities exchange operator activated a series of trading suspension measures stronger than the one used the previous trading day.

The KRX employed the circuit breaker on the KOSPI at 10:43 a.m. after the Seoul bourse plunged by more than 8 percent for one minute, halting stock trading for 20 minutes. This came shortly after the exchange operator activated a sidecar at 9:06 a.m. when the benchmark index dropped by 5 percent for a minute.

The activation of the circuit breaker has raised a sense of crisis in the local stock market.

Trading was also halted on the Kosdaq, after the KRX activated the circuit breaker about four minutes after its opening. The exchange operator also employed the sidecar on the secondary market about 30 minutes later.

The government is closely watching the market as it suffers from virus-driven volatility.

The Bank of Korea (BOK) said its seven-member monetary policy board is discussing whether to hold an emergency meeting this month to possibly cut the bank's base rate by 25 basis points to a record low of 1 percent, before a scheduled one April 9.

“Discussion is underway with the board members on the need for an extra meeting,” an official from the central bank said. “But for now, no final decision has been made.”

The BOK also decided Thursday to lower collateral requirements when offering loans by teaming up with state-run banks ― the Industrial Bank of Korea and the Export-Import Bank of Korea.

With confirmed cases of the virus surging in recent weeks, the BOK has been under growing pressure to cut its key rate, as part of preemptive steps to stimulate the sagging economy.

The FSC chief also presided over an emergency meeting Friday to introduce stricter regulations to stabilize the market.

The watchdog will take measures to temporarily ban the short selling of stocks here; while market watchers expect the commission to set up a stock market stabilization fund in the near future, in a bid to stop the market from collapsing further.

According to the KRX, total short selling on the KOSPI and Kosdaq reached 1.08 trillion won ($885 million), Thursday, the highest so far this year.

The coronavirus-induced market turbulence also weakened the local currency against the U.S. dollar. The exchange rate rose to 1,223 won per dollar at one time Friday, the highest in four years. The rate closed at 1,219.3 won, up 12.8 from a day earlier.

Hwang Sei-woon, an economist at the Korea Capital Market Institute, said the KOSPI might fall further, as the pandemic shock appears to be bringing bigger-than-expected market turbulence both here and abroad.

“The ongoing pandemic is totally different from other infectious diseases in terms of its destructive power across the global economy as is shown from the recent falls in the stock markets here and abroad,” he said. “Chances are the KOSPI may drop further in the next few trading days.”