Financial Market: Foreigners Remain Calm; Rebound in Sight

How will stock, exchange, and bond markets, all hit hard by news of President Roh’s impeachment, shape up starting March 15?

Many market watchers said the markets will rebound soon. That’s because international investors, who effectively control the local market, remain unperturbed.

The calmness in foreign exchange stabilization fund bonds, non-deliverable forwards and the won/dollar exchange rate will especially help stem market anxiety.

International investors remain unexpectedly calm. As of March 12, Korean corporations’ value of depository receipts did not plunge in New York and London. Rather, Hyundai Motor and Kookmin Bank both rose.

As for the NDP market, which has a bearing on Korea’s exchange rate, the one-month won was quoted at 1,184 against the dollar in Singapore. In London, it went up as much as 1,187 in London and closed at 1,185 in New York.

The spread on 10-year exchange stabilization fund bonds rose 0.10 percent to 0.72 percent in Hong Kong and closed at 0.72 percent, up 0.07 percent from a day earlier.

Market watchers said there would be no more forced selling and no rerun of the forced selling on March 12 which helped the KOSPI fall by as much as 48 points.

The shock of the impeachment among local investors should wear down over the weekend. Foreigners will likely buy into the market.

Rebounds on the NASDAQ and the Dow Jones Industrial Average will also help the Korean index turn around.

“When I asked foreigners about their perspectives, none of them said they would sell,” said Chung Tae-wook, the research team leader at Hyundai Securities. “Some of them said they will use a further fall in the index as a bargain-hunting opportunity.”

The won/dollar exchange, which rose by as much as 11.8 on March 12, is expected to stabilize. “The NDF market, which affects the local foreign exchange market, reacted calmly to the impeachment,” said Deputy Prime Minister and Minister of Finance and Economy Lee Hun-jai. “The forex market will recuperate.”

“The impeachment itself shook the financial market little,” said Park Jae-ha, senior researcher at the Korea Institute of Finance. “However, the market will react differently depending on how the post-impeachment political landscape shapes up.”

“There will be little change in the market, given the vital role foreigners play,” said Choi Kong-pil, another KIF senior researcher. “If the political conflict continues, uncertainty will rise.”