Korea: Black Monday--Jitters over delayed restructuring throws financial marts into panic

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Korea: Black Monday--Jitters over delayed restructuring throws financial marts into panic

Fears over a delay in the nation's financial and corporate restructuring due to the aborted sale of Daewoo Motor, combined with high crude oil prices, threw the local financial markets into chaos yesterday.

In the Korean version of Black Monday, the stock market experienced a free fall with trading halted for 20 minutes in the afternoon session to prevent a further plunge. The Korean currency tumbled against the dollar, while yields on state and corporate bonds jumped.

The composite stock price index, or KOSPI, nose-dived 50.64 points, or 8.06 percent, from last week to close at 577.56 yesterday, the lowest level in 18 months. Losers led gainers 806 to 65 with six issues remaining unchanged. The key index sank to 564.31 shortly after 1 p.m., initiating circuit breakers on the main bourse, under which trading of stocks, index futures and options was suspended for 20 minutes to prevent prices from falling further.

A circuit breaker is activated when the composite index stays down 10 percent from the previous close for one minute and longer. It was the second time this year that trading was halted due to falling prices.

"Following Ford Motor Co's withdrawal from the Daewoo takeover deal last week, investors, especially foreign investors, scrambled to dump their share holdings, creating a state of panic selling," an analyst said.

Most index-moving blue chips dropped, expanding the fall in the price index. Due to falling chip prices, Samsung Electronics tumbled 19,000 won to settle at 198,500 won, below the 200,000 level for the first time in 11 months. Most bank stocks plunged by the daily permissible limit on concerns that the delayed sale of Dawoo Motor would raise the burden on creditor banks which have an outstanding loans of 11.6 trillion won to the embattled auto-maker. The over-the-counter Kosdaq market also tumbled with the key index sinking 10.6 points to close at 88.65, the lowest level in 17 months.

The fallout from the stock market crash spilled over into the local foreign exchange market, causing the Korean won to plunge against the greenback. The Korean won closed at 1,131.40 won to the dollar, up from 1119.90 won last week.

The bond market also felt the impact with bond yields rising sharply. The yield on three-year government bonds was up 0.19 percentage point from last week to close at 8.11 percent, while the return on three-year corporate bonds was up 0.10 percentage point at 9.06 percent Experts said that there is growing skepticism about the fundamental health of the economy because of rising crude oil prices and falling chip prices, coupled with fears over delayed financial and corporate restructuring.

Unless the government comes up with a set of measures to speed up financial and corporate restructuring, investor jitters are unlikely to ease in the immediate future, they said.

Updated: 09/19/2000


-- Carl Jenkins (Somewherepress@aol.com), September 18, 2000

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