The FSC held a meeting with the FSS, KRX, and KCIF at 8 a.m. on August 21 to discuss recent global financial market condition and its impact on Korea’s stock market.
GLOBAL FINANCIAL MARKET CONDITION
Global stock markets recently went down with heightening global risk factors such as China’s stumbling stock market, its currency devaluation and speculation about the Fed’s rate hike.
- Stock markets in major economies mostly went on a downward trend since June this year. Emerging markets slumped further compared to advanced ones.
- Global stock funds are flowing into advanced market out of emerging markets amid growing uncertainty over global financial condition.
IMPACT ON KOREA’S STOCK MARKET
Volatility in Korean stock market has increased recently as foreign investors began to sell and stock prices stumbled with growing external uncertainty.
- Foreign investors have turned net sellers of KRW 4.3 trillion KOSPI shares since June this year as external uncertainties heightened.
- The KOSPI and KOSDAQ indexes have slumped recently.
* KOSPI: 1,916(end-2014) → 2,173(April 23, 2015) → 1,915(August 20, 2015)
KOSDAQ: 543(end-2014) → 783(July 20, 2015) → 657 (August 20, 2015)
Recent adjustments in stock market prices are seen largely due to external factors such as diminishing global market confidence, rather than domestic market factors.
- While foreign investors are selling shares in most of Asian stock markets, the amount of net sales by foreigners in Korean stock market is relatively small.
- Korea’s stock market indexes did not fall sharply, compared to those of Asia’s major markets.
Market fundamentals in Korea are sound, and global financial markets remain stable in comparison to previous market turmoil in 2011 and 2013. We see market participants do not have to react excessively to recent market developments.
- Korean stock prices are relatively undervalued. Korea’s foreign exchange reserves stood at USD 374.7 billion, the world’s sixth largest as of the end of June, 2015.
- Korea’s CDS, which surged to 688 in October 2008 during the global crisis and 220 in September 2011 following the first ever downgrade of US credit rating.
- Foreign investors’ net sales are modest, compared to those after the downgrade of US credit rating in 2011 and the tapering of the US’s quantitative easing(OE) program in 2013.
- The impact on the market from the exchange of fire between South and North Koreas on August 20 will be short-lived, given previous incidents of military tension between the two Koread.
There are still external factors that might affect domestic markets such as China’s stock market volatility and a possible US rate hike.
- The government will strengthen monitoring and take actions, if necessary, in order to prevent recent global market uncertainty from causing excessive volatility in Korea’s stock market.
*Please refer to the attached PDF for details.