Thursday to Make or Break `Black Sept.` Rumors

Tomorrow or Wednesday will make or break rumors of a financial crisis this month that have rattled the Korean foreign exchange and stock markets.

Experts say psychological jitters over “black September” will subside unless foreign investors massively sell their bonds by Wednesday. The domestic financial market, however, is expected to be more volatile through Thursday, which is considered a quadruple witching day.

The Bank of Korea`s Monetary Policy Committee that day will announce the benchmark interest rate for September, as well as stock index options and single stock futures and options all expiring.

○ Pivotal Wednesday

Among the seven trillion won (6.3 billion dollars) in government bonds held by non-Koreans to mature this month, 6.8 trillion won worth excluding those from reinvested bonds await maturation, according to the Strategy and Finance Ministry, the Financial Services Commission and the Financial Supervisory Service yesterday.

Of foreigner-owned state bonds, 680 billion won will mature tomorrow and five trillion won Wednesday. Both the government and the central bank, however, say a mass bond sale is highly unlikely given that sufficient funds have been secured to pay maturing bonds and that the earning rate for domestic bonds is expected to be high.

Foreign investors net purchased domestic bonds worth 1.83 trillion won between Monday and Thursday last week.

The government plans to issue one billion dollars of forex stabilization funds abroad Thursday. If it issues foreign-currency bonds at low interest, this could play a crucial role in dispelling fears of a Korean economic crisis.

Certain analysts also say the U.S. government’s rescue plan for the troubled mortgage finance giants Fannie Mae and Freddie Mac will help resolve uncertainty weighing on world financial markets.

○ Due date of stock options

Uncertainty will likely linger this week as the Korean stock market is expected to become more volatile Thursday, the expiration date for stock index options, single stock futures and options. “If more than nine trillion won of profits are paid off en masse, it will send shockwaves throughout the stock market,” says Kim Jung-hyun, a senior researcher at Good Morning Shinhan Securities.

The Monetary Policy Committee’s announcement slated for Thursday on the benchmark interest rate is another key factor. The committee is expected to freeze the rate given the economic slowdown which has put extra interest burden on both households and companies. The majority 94.7 percent of bond market experts predict a freeze, according to the Korea Securities Dealers Association.

Merrill Lynch and other foreign investment banks, however, have recommended that Korea raise the benchmark rate to prevent inflation caused by the depreciation of the won.

○ Alerts on potential crisis

Even if the country overcomes these whammies this week, anxiety over the foreign exchange and stock markets will linger due to mounting negative factors such as the unstable international financial market and economic slowdown.

Leading economist on Asia Andy Xie told The Dong-A Ilbo in an e-mail that he does not believe in “a black September” for Korea, but warned of a real economy crisis due to a collapse in real estate prices and other factors.

Park Hae-sik, a senior researcher at the Korea Institute of Finance, said, “Regardless of the crisis rumors, increasing debts of households and companies are worrisome factors adding pressure to the financial market.”

“The financial regulator should continue to closely monitor the movements of foreign bonds and stock investors and factors that can rattle financial markets.”

parky@donga.com