Financial Markets Tumbling Everyday

Korean financial markets tumbled on November 24 with stock prices plunging and the won-dollar exchange rate skyrocketing (the value of won depreciated). This was due to the report on the prosecutors’ search with a warrant of seizure into Samsung Electro-Mechanics Co. which negatively affected the prices in addition to the financial uneasiness caused by the “LG Card crisis.”

On the same day, the Korean Stock Exchange (KSE) finished with a Korea Composite Stock Price Index (KOSPI) of 753.65 points, down by 17.13 (2.22 percent) from the previous trading day, the lowest level in about a month since October 24 (748.17 points).

The KOSDAQ market ended the day with a KOSDAQ Index of 43.81 points, down by 1.86 (4.07 percent), which is the first time that the index dropped below 43 points in six months since May 20 (43.96).

The stock prices of the financial companies, including securities companies, insurance companies and banks, which now should take a heavier burden of new loan support due to the “LG Card crisis,” dropped sharply.

LG Group affiliate companies, including LG Card which hit its lowest level, saw their share prices fall sharply. As the share price of Samsung Electro-Mechanics Co. dropped by more than 6 percent, other Samsung Group affiliate companies recorded an all-around decline. Furthermore, in the Korean Exchange Market, the won-dollar exchange rate jumped to 1202.80 (won-dollar), up by 7.2 from the previous trading day, which is the first time that the exchange rate went above 1200 (won-dollar) in five and a half months since June 2 (1205.4 won-dollar).

Ku Gil-mo, a section chief of Korea Exchange Bank, said, “Despite the creditors’ decision to provide LG Card Co. with funds, as uneasiness grew in the financial market, the demand for the dollar increased. Because the demand for the dollar also increased in the Non-Deliverable Forward (NDF) market, the won-dollar exchange rate received a strong upward pressure.”

Meanwhile in the bonds market, although the creditors decided to back LG Card Co., the trading of LG Card’s corporate bonds almost stopped. LG Card’s Convertible Bonds (CB) and Bonds with Warrant (BW), listed on the KSE, recorded 5500 won, down by a surprising 27 percent from November 21.

Kang-Woon Lee Joong-Hyun Park kwoon90@donga.com sanjuck@donga.com