Uncertainties linger on Omicron, Evergrande default risks

A dealer passes by an electronic board at a dealing room of Hana Bank headquarters in Seoul, Monday. Yonhap

Won loses more ground against US dollar

By Lee Min-hyung

More uncertainties are beginning to weigh on Korean financial markets, amid escalating fears over the Omicron variant of COVID-19 and updated reports on China's top real estate developer teetering on the verge of collapse.

The won-dollar exchange rate closed at 1,183 won per dollar, up 2.9 won from the previous day's trading, while the benchmark KOSPI closed with a slight gain after tumbling in the morning.

The main bourse was widely expected to fall amid the overseas uncertainties, but defended well with a gain of 0.17 percent by the close, finishing at 2,973.25 points following a buying spree by institutional and foreign investors. Individuals, however, net-sold shares worth 199.1 billion won.

But it still remains to be seen whether Korean stock markets will be able to regain stronger momentum for a rally due to multiple external risk factors, according to analysts.

The financial authorities said they will continue monitoring to detect any unusual signs in the local financial markets.

"For now, we do not have any plans to take specific actions regarding external risk factors, but we will keep a tight watch on them to determine their possible impacts on the local equity and financial markets," an official from the Financial Supervisory Service (FSS) said, declining to comment further.

First Vice Minister of Economy and Finance Lee Eok-won recently expressed concern on the widening volatility of the local equity market, saying that the continued global supply disruption, rising raw material costs and Omicron fears will keep escalating uncertainties on prices here.

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Reports on China's Evergrande last week also came as another escalating fear factor for the local financial market. With the once-renowned real estate developer there releasing a pessimistic statement on its debt repayment Friday, major large-cap tech stocks based in China ― such as Alibaba ― plunged Monday morning.

Economists said the latest update on the Evergrande crisis would not have a critical impact on the Korean economy, but advised investors to brace for a possible "chain-shock" from the issue.

"The financial market is expected to expand volatility on the default risk of Evergrande at a crucial time when Omicron-related fears are showing few signs of abating, and major cryptocurrency prices are plunging," Hi Investment & Securities analyst Park Sang-hyun said.

It is time for the local financial market to be ready to embrace short-term volatility due to such multiple external risk factors, according to the analyst.

The recent fall of major cryptocurrencies ― represented by bitcoin ― poses a threat to the financial market here and abroad. The value of bitcoin sharply declined by 20 percent down to 56 million won on Saturday alone, and has since failed to bounce back to previous highs.

Given that bitcoin is regarded as the safest cryptocurrency, the one-day plunge of the world's most expensive digital coin has raised red flags for the Korean financial market.

"One of the most persuasive reasons behind the bitcoin plunge is the escalating risk of the U.S. Fed's monetary tightening," Park said. "Fears that the Fed will speed up the pace of tapering its asset purchases have put a damper on the rising prices of cryptocurrencies."

As bitcoin is also classified as a risky asset in the global asset market, chances are investors' preference for safe assets ― such as the U.S. dollar or gold ― will remain for the time being.

The ongoing pandemic spread here ― with Korea's daily COVID-19 infection cases topping 4,000 for more than a week ― is another factor that will deepen preferences for safe assets, thereby increasing the won-dollar exchange rate further.

The prevalent view is that the dollar will be traded at more than 1,200 won soon for the first time this year. Starting this year, the rate has been on a steep rise amid the prolonged pandemic uncertainty here and abroad.

The domestic stock markets and the economy are also expected to lose recovery momentum amid ever more hawkish gestures from the Bank of Korea (BOK). After increasing the key rate twice in three months, the central bank is scheduled to push for another hike in January or February, with BOK Governor Lee Ju-yeol reiterating his strong willingness to normalize the central bank's year-long monetary easing stance.

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