Stocks Crash! Kosdaq Collapses below 60 Points

At 24th of July, Korean government had an economiy-related ministerial meeting under the supervision of Chun Yun Chul, the Vice Premier & the Minister of Ministry of Finance and Economy. In the meeting, the participants discussed about negative effects on Korea economy from US stock markets and countermeasure.

The ministers talked “ Korea economy will be affected by US economy. However the range of uncertainty is very wide at the moment. So it is very difficult to estimate the direction of US economy and the influence on Korea economy.”

Therefore, the government decided to maintain macro-economy policy with flexible monetary operation to some extent. The government will increase bond for Exchange equalization fund by 2 –3 trillion won of to stabilize the drop of foreign currency rates. Additionally the government will increase the size of hedging for currency rate from 4 trillion to 5 trillion won and will use the fund for purchasing dollars.

That day, Korea stock index dropped sharply by 22.11 points (2.97%) from the previous day and closed at 721.41 points. Kosdaq index also dropped by 2.07 points from the previous day and closed at 59.54 points. Daeshin Stocks talked “we expected rebound, but US stocks has decreased four days successively and the confidence for investment disappeared. To make thing worse is that foreign investors are on a selling trend.

Therefore the market is on excessive supply.”

Foreign investors had been on a selling trend for 7 days and were on net selling with 124 billion won at 24th as well.

Once stock index dropped to 715 points but rebounded in the afternoon due to the news of Standard & Poor’s to increase Chain Index.

Main Asian stock markets such as Tokyo of Japan, Hong Kong, etc were on bearish market. Nikkei Index maintained 10,000 points level in the morning, but it dropped by 267.91 points and closed at 9,947.72 points. It was the first in 5 months for the index to drop under 10,000 points.

In Hong Kong Stock Market, Hang Seng Index dropped first in 9 months under 10,000 points. The index dropped by 357.12 points (3.46%) from the previous day and closed at 9,956.77 points.

Rae-Jeong Park Suk-Ho Shin ecopark@donga.com kyle@donga.com