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Global rout hits Kospi, Kosdaq and the won

Oct 12,2018
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Korean equity and currency markets nosedived Thursday with the main Kospi bourse seeing its largest drop in seven years, taking a negative cue from Wall Street the day before.

Major U.S. market indexes, including the Dow Jones Industrial Average and S&P 500, lost more than 3 percent as worries about rising interest rates and the U.S.?China trade war spooked investors.

The Korean indices - the Kospi and the tech-focused Kosdaq - fell even further. The main bourse fell 4.44 percent to reach 2,129.67, the lowest closing level since April 2017. The Kosdaq plunged 5.37 percent to reach 707.38.

The Korean won also hit this year’s lowest level at 1,144.4 won against the U.S. dollar, up 10 won or 0.9 percent from the previous trading session.

The benchmark Kospi and the junior Kosdaq have been on losing streaks for eight consecutive trading days with uncertainties outside of Korea dampening investor sentiment.

“Different factors play into the drop,” said You Seung-min, an analyst at Samsung Securities. “First, it is the rising U.S. Treasury bonds’ yield rates and renewed possibility of inflation affected by increasing oil prices. Then there’s trade tension between the United States and China and worries over weak performances of tech stocks.”

Leading tech shares in the United States such as Microsoft and Amazon led the Wednesday rout, which also dealt blows to local IT leaders Samsung Electronics and SK Hynix.

Analysts have warned that the two companies’ performances are going to suffer due to the oversupply of semiconductors starting in the fourth quarter.

In a report published last month, Goldman Sachs lowered its view for the semiconductor capital equipment sector to “neutral” from “attractive,” citing concerns about oversupply in memory chips including dynamic random-access memory (DRAM) chips.

That followed Morgan Stanley’s downgraded view for the tech sector to “cautious” from “in-line” last month, also warning of high inventory levels.

Lee Kyung-min, an analyst at Daishin Securities, pointed to investors’ doubts over economic fundamentals in the United States.

“The Wednesday downfall in the United States stems from uncertainties surrounding fundamentals,” Lee said.

“Along with lower prospects for tech companies’ earnings, Chicago Federal Reserve Bank President Charles Evans said that U.S. economic growth will only reach 2.5 percent next year, which triggered investors’ anxiety,” he said.

His view is in line with the International Monetary Fund (IMF)’s downbeat assessment for the global and Korean economies this year through next year.

Its latest report painted grimmer prospects for the overall global economy this year and the next, trimming its predictions by 0.2 percentage points each to 3.7 percent for both years.

The agency also lowered its outlook for Korea’s economic growth this year and next, citing trade tensions between the world’s two largest economies, slower momentum in global trade and financial turbulence in emerging countries.

Meanwhile, the dollar is expected to continue strengthening against the won because of investors looking for safer assets in times of uncertainty.

Depreciation of the Korean won has led more foreigners to try profiting from the strengthening dollar. In the last eight trading days, foreign investors net sold nearly 2.3 trillion won ($2 billion) worth of shares on the Kospi.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]