Financial authorities fret over growing volatility on Wall Street

The Korea Times

The Korea Times

Finance

Mon, December 4, 2023 | 14:41

Markets

Financial authorities fret over growing volatility on Wall Street

Posted : 2021-09-29 17:09

Updated : 2021-09-30 09:09

An electronic board, set up at Hana Bank's dealing room in Seoul, shows plunges of the benchmark of KOSPI and secondary Kosdaq on Wednesday morning. Yonhap

Watchdog holds first risk management meeting amid stock falls

By Lee Min-hyung

Stock markets here stumbled Wednesday in the wake of an overnight fall on Wall Street, putting Korea's financial authorities on alert over the repercussions of growing volatility in the U.S. triggered by inflation worries and weak consumer sentiment.

The Financial Supervisory Service (FSS) held its first meeting of a risk management taskforce the same day to monitor any turbulence in the local markets.

FSS said it did not take any specific action other than stepping up monitoring of the market, despite the slight plunge, but added it would continue watching closely amid lingering uncertainty over a series of external financial issues.

"The meeting was the first of its kind, and we will keep developing it in a more systemic manner," a spokesman for the FSS said, declining to comment further, as the taskforce was only recently set up.

The benchmark KOSPI opened with a drop of 1.37 percent and remained weak throughout the day on a selling spree of large-cap tech stocks by foreign and institutional investors. The main bourse closed at 3,060.27 points, down 1.22 percent from the previous trading day, according to the Korea Exchange. The secondary Kosdaq also showed signs of turbulence, closing at 1,001.46, down 1.09 percent.

The downward moves were in response to U.S. stock falls overnight. The Dow Jones Industrial Average closed 1.63 percent down, and the S&P 500 dropped by more than 2 percent on a treasury yield hike there ― the Nasdaq also fell 2.83 percent.

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FSS Governor Jeong Eun-bo called for the need to maintain vigilance over the uncertainty, saying widening external volatility may result in a possible perfect storm on the local financial market.

"Such factors may end up widening volatility in the foreign exchange, stock, real estate and cryptocurrency markets here, and their influence will create the possible perfect storm, so we need to closely watch the potential risks," he said in a recent meeting of executive officials.

The FSS decided to hold a taskforce meeting every week to closely check for any signs of instability in the local financial market amid the U.S. Fed's signal for tapering and China's Evergrande crisis.

"The taskforce will look closely for any possible signs of instability in the financial market and foreign currency liquidity," Jeong said. "If necessary, we will also team up with other financial authorities ― such as the Financial Services Commission and the Ministry of Economy and Finance ― to respond to the market in a timely manner."

Market analysts argue that uncertainty on the Korean stock market will continue throughout the end of 2021, as the aforementioned external risk factors are expected to weaken investor sentiment here.

They argue the future course of the main bourse will be determined by stocks in some promising growth areas.

"Investors should watch stocks with a high possibility of improving their profits at a time when the KOPSI's overall profit momentum is slowing," SK Securities analyst Lee Jae-yoon said. "The sectors include transportation, steel and IT, and key players in the industries are expected to report better earnings in the latter half of the year."

The foreign exchange market also exhibited instability Wednesday after a recent spike in the won-dollar exchange rate. The won closed at 1,181.8 to the dollar, down 2.6 won from the previous day.

The exchange rate started with a gain of 3.6 won, the highest in about a year, on escalating fears of an earlier beginning of an end to the U.S. Fed's asset purchases, but ended with a slight fall.

The Bank of Korea's (BOK) additional benchmark rate hike this year also burdened the local financial market, according to analysts.

Seo Yeong-gyeong, a member of the central bank's monetary policy committee, reiterated the bank's stance toward raising its benchmark rate "soon." "Even if the BOK raised the rate in August, the monetary policy here is still at the easing level," she said Wednesday in a seminar. "We will decide on the timeline of a further rate hike after taking macroeconomic and financial circumstance here into balanced consideration."

mhlee@koreatimes.co.kr