Stocks crash on China worries

[박광영 (10기)]

Stocks crash on China worries

Won weakens against dollar to lowest level since March 16

Fears about China's economic slowdown pounded Korean financial markets yesterday, driving stocks and the local currency down to levels not seen in about a month.

The benchmark Korea Composite Stock Price Index had its biggest slide this year, closing down 2.93 percent, or 26.42 points, to 875.41, the lowest since March 30.

On the currency market, the won weakened 1.2 percent, or 14.3 won, to finish at 1,170.7 against the U.S. dollar, which was the weakest close since March 16.

Foreign investors sold a net 773.3 billion won ($660.3 million) in Korean shares, taking a cue from the overnight plunge on Wall Street after Chinese Premier Wen Jiabao said Beijing would take "forceful" measures to cool its runaway economy to ease concerns about inflation and overheated investment in industries.

The foreign net selling amount more than doubled the previous record of 376 billion won, which was set Aug. 6, 2002.

"China-geared players, such as steel, petrochemical and shipping sectors, have been the main pillars of Korean stock markets. But they all now see a possible brake in their biggest market," said Jeong Eui-suck, a market strategist at Goodmorning Shinhan Securities.

Steel giant POSCO dived 5.77 percent to finish at 147,000 won, while LG Chem Ltd., the nation's largest chemicals maker, closed down 5.88 percent at 48,000. Hanjin Shipping Co., Korea's biggest shipping line, also plunged 8.29 percent to 16,050 won.

Investor confidence was further hit by an announcement from Merrill Lynch and new industrial output data. The U.S. investment bank cut its rating on Korea from "overweight" to "underweight," citing the country's excessive vulnerability to external environments and strengthening local currency that would dent local exporters' international competitiveness. State figures also showed that industrial output growth slowed in March, as domestic demand remained shy.

"In a nutshell, a set of negative factors struck the market simultaneously. Stocks are unlikely to continue this big downswing, but it should take considerable time before the market gets fresh momentum and investor sentiment takes off," Jeong forecast.

On the main bourse, losing stocks overwhelmed gainers at 570 to 173, with 53 items remaining flat.

The technology-rich Kosdaq also retreated 4.73 percent, or 22.66 points, to 456.04.

Jitters about the Chinese economy, coupled with the yen's slide against the U.S. dollar, sent the won down sharply.

"The premier's remarks hinting that China would resist pressures to ease the yuan's peg to the dollar dashed expectations that Asian currencies would gain together with the yuan's possible appreciation," said Lee Min-jae, a currency trader at Woori Bank.

Premier Wen told Reuters that a dramatic change in its currency valuation would "bring unpredictable problems" to China's economy and probably the whole world.

"In addition, investors are now starting to believe the dollar's weakness, which has continued over the past two years, seems not the case any more, applying further downward pressure on the won," Lee explained.

출처 : Koreaherald   2004. 4. 30