U.S. Job Crunch Rattles Asian Stocks

Asian stock markets including Korea’s have been hit hardest by news of the “unemployment shock” in the United States.

The U.S. Labor Department released Friday worse-than-expected job growth, causing Asian stocks to nosedive after this year’s first weekend.

Since the department’s report is a barometer of the American economy’s health, worry is rising over whether a slowdown has occurred. A U.S. economic slump would negatively affect Korean exports both directly and indirectly.

‘Blue Monday’ for Asian Stocks

Korea’s benchmark KOSPI fell 32.76 points (1.76 percent) from Friday to close at 1,831.14 yesterday. Foreign net selling reached 499.6 billion won, the highest since 625.9 billion won on December 18 last year. The tech-heavy KOSDAQ fell 7.48 points (1.04 percent), to end at 711.77.

Japan, Hong Kong, Taiwan, and Singapore all suffered drops in their stock markets. Japan’s Nikkei closed at 14,500.55 yen, falling 190.86 yen (1.3 percent) from Friday. Taiwan’s main stock index dropped 337.73 points (4.11 percent).

The Shanghai Composite Index, however, rose 31.77 points (0.59 percent) to close at 5,393.34, boosted by a surge in financial stocks.

Korea’s foreign exchange market also fluctuated, as the won/dollar rate rose two won to close at 940.50 due to higher dollar demand from foreign investors.

Cloudy U.S. Job Market

The jobless rate in America rose from 4.7 percent in November to five percent last month, the highest since November 2005, when the United States was reeling after Hurricane Katrina hit.

Moreover, non-farm payroll employment increased a mere 18,000 from a month ago, the worst in 52 months and far below market expectations of 70,000.

Daewoo Securities researcher Goh Yoo-seon said, “The new job figure fell far below 100,000, which is necessary to continue economic growth. Stagnant job creation is aggravating worry over a slowdown in U.S. household consumption and economy.”

Lee Jong-woo, head of research at Kyobo Securities, said, “The Korean stock market, already suffering from the U.S. subprime mortgage loan crisis since last year, has fluctuated due to news of the American economic slowdown.”

Other experts say it remains to be seen whether the U.S. economy will enter a slump, given the possibility of additional interest rate cuts by the Federal Reserve Board.

Hyundai Securities researcher Lee Sang-jae said, “Since the U.S. government is likely to proactively boost the economy, we should continue to look at the U.S. economy without jumping to conclusions.”

Risk Management via Diversification

Stock market experts say individual investors should diversify their investments, warning that the Korean stock market is highly likely to turn more volatile, though temporarily.

Shin Sang-geun, head of asset distribution strategy at Samsung Securities, said, “Fund investors should diversify their investments into global funds. Emerging markets including India can be a good choice, since they are not seriously affected by the U.S. economy.

“Also, investors need to consider selling a portion of their stocks and investing the money into time deposits.”

ssoo@donga.com