“Sell Korea” by Foreign Brokerage Firms

With the impending U.S.-Iraq war, the risk premium on Korean bonds rose in the global market, while foreign investors were dumping Korean stocks and bonds in the domestic financial market.

The Bank of Korea (BOK) announced today that the risk premium on Korea’s foreign exchange stabilization bonds took an upward turn. The premium risk on Korea’s foreign exchange bonds skyrocketed to 2.15 basis points on March 12, dropped to 1.72 basis points on March 14 and rose again to 1.78 basis points on March 17 in Hong Kong. Bonds issued by Korea Electric Power Corporation, the Korea Development Bank, and Kookmin Bank rose on March 17 as well.

Premium risk on Korea’s foreign exchange stabilization bonds rose to 2.10 basis points on March 12, dropped to 1.72 basis points on March 14 and rose again to 1.82 basis points on March 17 in New York.

Foreign brokerage firms in the domestic financial market suggested lowering the volume of Korean equities and bonds due to the shaky economy caused by North Korea’s nuclear development program, SK Global’s accounting scandal and high overdue rates for credit loans.

Goldman Sachs announced today that it notched down Korea’s investment rating from market weight to underweight. The brokerage firm said equity prices are not likely to rise until Korea’s risk factors are resolved despite low prices due to the selling spree.

Goldman Sachs also declined SK Telecom’s target equity price by 15% from 195,000 won to 165,000 won, saying SK Telecom’s cash is likely to flow into SK Global due to the accounting scandal and that SK Global is dumping its SK Telecom stocks.

JP Morgan recommended scaling down foreign exchange bonds issued by the Korean government, corporations and banks, reported Dow Jones.

HSBC also downgraded POSCO’s rating from market weight to underweight and decreased the target equity price by 48% from 157,000 won to 81,000 won.

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