Financial markets rebound but will likely remain on thin ice

Korea’s financial markets rebounded sharply Tuesday from the previous day’s massive decline but markets will likely remain on thin ice for a while.

Both the benchmark KOSPI and tech-heavy KOSDAQ surged more than 5 percent and the won-dollar exchange rate fell under 1,180. After opening the day 51 points higher, the KOSPI ended 83 points (5.02 percent) higher at 1,735.71, its biggest one-day gain since Jan. 28, 2009.

The KOSDAQ, whose 190 listed companies posted record lows Monday, rose 23.86 points (5.58 percent) to finish at 433.41.

The won gained 22.7 points to close at 1,173.1 against the U.S. dollar.

Global financial markets also stabilized downwards, but the credit default swap premium rose to a yearly high. The credit default swap premium on five-year government bonds surged to a yearly high of 2.1 percent, up 0.93 percentage point from 1.27 percent at the end of August.

Over the same period, China’s credit default swaps rose to 1.72 percent from 1.08 percent, while that of Malaysia jumped to 1.93 percent from 1.1 percent.

The rise of credit default swaps in emerging market economies was due to global investors withdrawing their money from these markets. A credit default swap is similar to a traditional insurance policy, with a higher figure meaning a bigger default risk.

libra@donga.com witness@donga.com