Fear of perfect storm looms larger in Korean financial market

Finance Minister Hong Nam-ki, left, greets Bank of Korea Governor Lee Ju-yeol ahead of an emergency economy meeting at Cheong Wa Dae in Seoul, on Apr. 22. Yonhap

By Lee Min-hyung

The financial authorities are on high alert over a possible perfect storm in the local equity and foreign exchange markets in response to intensifying post-election uncertainties in the U.S.

The 2020 U.S. election has been one of the biggest external political risks for Korea this year. Those in financial circles ― such as the stock, bond and currency markets ― paid keen attention to the result of the election, as their ups and downs are heavily affected by those from the world's largest economy.

But even though the election ended up with a victory for Joe Biden, post-election anxieties remain in place, with incumbent President Donald Trump reaffirming his intention to file lawsuits and claiming voter fraud in some swing states.

The likelihood that Trump will be able to reverse Biden's win remains very slim, but Trump is making it clear that he will bring the vote count to the courtroom. The decision is widely seen as a major risk factor for the local economy which fluctuates in line with any shift in financial policies from the world's largest economy.

The authorities are particularly keeping a close watch over potential volatility in the foreign exchange market amid the recent plunge in the won-dollar exchange rate. Starting from September, the rate reported a steep decline, falling to 1,113 won Monday. It was traded at around 1,180 won per dollar as of the end of August.

The central bank said it would heighten its monitoring for potential volatility in the exchange market amid concerns over post-election market confusion and other fear factors surrounding the second and third wave of the COVID-19 pandemic.

“We keep a close watch on possible expansion of volatilities in the local financial and foreign exchange markets due to the U.S. election result and the continued spread of the coronavirus pandemic,” an official from the central bank said. The BOK will take relevant market stabilization measures if there are any signs of market turbulence, according to the official.

The Ministry of Economy and Finance maintained its earlier position that the election risk factor would have a limited impact on the local financial market.

“Our position is that risks surrounding the U.S. election have already been reflected on the local financial market, but we will closely look for any unusual or volatile signs in a preemptive manner,” an official from the ministry said. The ministry will take relevant measures if it detects any signs of a potential financial perfect storm, according to the official.

The ministry declined to give specific details, saying that they will be discussed during an upcoming economy meeting with ministers, Thursday.

Finance Minister Hong Nam-ki will preside over the meeting and have in-depth talks with a group of other ministers and senior presidential economic aides over the comprehensive impact that a Biden administration will have on the Korean economy.

Other financial watchdogs and institutions ― such as the Financial Services Commission, the Financial Supervisory Service and the Korea Exchange ― are also remaining vigilant over the possible post-election market confusion here by holding relevant meetings on the four days since Nov. 4 when the election ballot counting started.

Unlike the foreign exchange market, the local stock market has yet to detect any signs of a collapse. On Monday, the benchmark KOSPI set a new high for the year of 2,452 at one time in the morning.

The main bourse reported lukewarm growth throughout October amid widening uncertainties surrounding the election. But with Biden coming closer to a win Friday, it jumped by 2.4 percent from the previous trading day.

The secondary Kosdaq has also reported slight growth for the last two trading days until Monday, as the election-related uncertainties were being cleared away. With foreign investors' net purchase of Korean stocks topping 2.1 trillion won this month alone, expectations are also rising that the Biden factor will bode well for the local stock market, even if uncertainties remain in place.