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Monitors at the Hana Bank dealing room in downtown Seoul display KOSPI and exchange rate figures on Sept. 28. (Yonhap)

South Korea’s financial market has plunged into a triple whammy of turbulence involving stocks, exchange rates and bonds as a result of fears concerning a global economic slowdown in connection to recent news regarding global tech giant Apple, decreasing profitability of the domestic semiconductor industry, and the depreciation of the Chinese yuan.

Financial authorities have been taking all possible measures to try and stabilize the market, such as buybacks worth 2 trillion won by the Ministry of Economy and Finance, the purchase of 3 trillion won in government bonds by the Bank of Korea, and the Financial Services Commission’s efforts to initiate talks on the reactivation of a stock market stabilization fund.

On Wednesday, the won-dollar exchange rate closed at 1,439.9 won on Seoul’s foreign exchange market. This marked an increase of 18.4 won from the previous day. The number even rose to 1,442.2 won at one point during the day but then fluctuated and eventually fell below the 1,440-won mark by the end of trading.

According to market estimations, financial authorities intervened through supply (the selling of dollars). The global strength of the dollar and the continued weakening of the yuan are also believed to have had an impact.

The dollar index, which shows the dollar’s value against the six major world currencies, rose to 114.7 at one point, the highest since April 2002. Meanwhile, the Chinese yuan soared to 7.22 yuan per dollar, marking the highest exchange rate since the end of January 2008. The latter is believed to be mainly due to a sharp decline in China’s economic growth forecast for this and next year.

Treasury bond yields have also risen sharply. The yields on three-year treasury bonds rose 0.034 percentage points from the previous day to 4.338% per annum due to concerns regarding a domestic economic slowdown in Korea.

In the morning, this figure was close to the year’s high (4.548%) standing at 4.488% per annum, but ended up closing slightly below this figure in the afternoon as news of authorities’ measures to stabilize the bond market came out.

Global government bond yields around the world are rising sharply in the wake of the steep US benchmark interest rate hike and the UK’s announcement of measures aimed at shoring up its economy.

The domestic stock market was no exception to the trend, with Korea's benchmark index even breaking 2,200 points on Wednesday.

The KOSPI fell by 54.57 points (2.45%) to close at 2,169.29 points on Wednesday. This marked the first time the index crossed the 2,200-point threshold in two years and two months, the last time being on July 20, 2020, when the index ended the trading day at 2,198.20 points. It only took three trading days for the KOSPI to fall below 2,200 points after recording over 2,300 points as of Friday.

Meanwhile, the KOSDAQ index also closed at 673.87, plunging 24.24 points (3.47%) from Tuesday.

Market watchers interpreted these figures as the result of growing concerns about an economic slowdown in connection with the news of Apple’s recent decision to drop plans to increase production of its new iPhone 14.

On Wednesday, Bloomberg reported that Apple had scrapped its plans to increase production of the new iPhone given how the previously anticipated surge in demand failed to materialize.

Market participants interpret the news as a rather bad omen foreshadowing weak earnings for Samsung Electronics and SK Hynix.

In addition, concerns about an EU economic recession are also growing due to the impact of Tuesday’s leak in Nord Stream 1, a gas pipeline connecting Europe and Russia.

Pessimistic remarks by global financial authorities could also be having a negative impact on the already dire domestic financial situation.

Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said in an interview from Geneva on Tuesday that “We have to weather what looks like an oncoming recession,” adding that “the indicators are not looking good” when it comes to global trade forecasts.

Similarly, Christine Lagarde, president of the European Central Bank, stated that 2023 will “certainly be a difficult year.”

Domestic financial authorities introduced various market stabilization measures throughout the day.

The Bank of Korea is engaging in bank direct purchases (BDPs) of treasury bonds worth 3 trillion won (three, five, and ten-year bonds) while the Ministry of Economy and Finance is also planning to carry out a 2 trillion won buyback of treasury bonds on Friday. The latter’s move is reportedly aimed at raising bond prices by reducing the circulation of treasury bonds currently in the market.

Financial authorities also said they would try to minimize the plunge in stock prices by reactivating a stock market stabilization fund estimated to be worth around 10 trillion won.

By Lee Jae-yeon, staff reporter; Jun Seul-gi, staff reporter

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