hankyoreh

By Kim Hoe-seung, Staff Writer　

Stock values, the won, and bond interest rates collectively fell Monday on the domestic financial market amid growing panic. In particular, the value of the won, a key indicator of overseas trust in the international financial market, is showing no signs of stopping its free fall. Financial market players who experienced the nightmare of the Lehman Brothers collapse are predicting that the troubling won-to-dollar exchange rate will be the decisive variable in determining the direction of the financial market. At a time when a “differentiation of currency values” between countries is rapid taking shape, the won is appearing especially weak.

After the Swiss franc and Japanese end, demand for safe assets is now moving toward China. As of Monday, the won had dropped by fully 9.3% since August against the dollar, but the yen fell only 0.1% over the same period, while the renminbi actually rose 0.1%.

Amid the highly unusual situation, dollar, yen, and renminbi remain strong. Shinhan Bank analyst Hong Seung-mo described this as “strong nation currencies showing strength, without any distinction of ‘developed’ or ‘developing.’”

The argument is that demand appears likely to continue for China out of continuing belief in strong economic growth, and for Japan as an alternative to the dollar.

A senior foreign exchange official said, “With a deepening preference for safe assets, the currency values for emerging nations are all dropping.”

“For the time being, things are certain to be rocky as events unfold in the United States and Europe,” the official predicted.

The market has also viewed intensive intervention by South Korean foreign exchange authorities as inadequate to the task of reversing the exchange rate’s direction. Authorities are estimated to have poured close to $10 billion in during the past week alone. As of late August, South Korea’s foreign reserves stood at $312.2 billion.

The South Korean government, however, believes that the amount of foreign reserves that can actually be operated is just $100 billion. In the event of a growing financial crisis, European and other foreign investors are likely to rapidly desert the South Korean market. As of late August, the balance of foreign investors’ securities investment stood at 350 trillion won, of which European investors accounted for around 30%. Short-term borrowings for financial institutions, the major destabilizing factor during the 2008 financial crisis, stand at $101.5 billion. A Ministry of Strategy and Finance (MOSF) official said, “Foreign reserves of $200 billion represent a psychological Maginot Line for maintaining overseas confidence.”

With offshore investors gambling on speculative dollar purchases recently in the foreign exchange market, the increase is being fanned with the addition of conversion demands from foreign investors who have decamped from the stock market. As time passes, the market is creating more and more of a sense of deja vu recalling the Lehman Brothers collapse.

A foreign exchange dealer at one commercial bank said, “If a Greek default comes to pass, we will go past 1,200, and we will probably go straight to 1,600 [won to the dollar].”

On the stock market, the KOSPI closed Monday at 1,652.71, down 44.73 points, or 2.64%, from the weekend. The won-to-dollar exchange rate finished up 30 at 1,195.80, its highest level in thirteen months.

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