Won’s Value Falls to 11-year Low

The Korean won yesterday fell to an 11-year low on news that Wall Street stocks hit their lowest level in 12 years.

The Korean financial market will likely keep fluctuating as long as negative developments abroad remain unresolved.

In Seoul yesterday, the won dropped 27.30 points against the dollar from Monday to close at 1,516.3, the lowest value since 1,521 on March 31, 1998.

The cause was foreign net sales of Korean stocks that continued for the 11th straight day. The won-dollar rate has shot up as much as 256.8 points since late last year.

The benchmark stock index KOSPI fell 35.67 points (3.24 percent) to close at 1,063.88 in the wake of the U.S. Dow Jones Industrial Average plunging 3.41 percent to hit a 12-year low.

The sense of crisis weighed on Korean stocks, with market insiders fearing that the index could fall below 1,000 again after October and November last year.

The U.S. government said it will inject more state funds into major banks after reviewing their financial situation. The move has heightened investor fears by spawning debate over the nationalization of private banks.

Investor sentiment rapidly deteriorated on news that Washington is discussing the bailout of AIG, which has suffered record losses, amid mounting fears that the Big Three American automakers could file for bankruptcy protection.

The spread of the financial crisis originating in Eastern Europe also weighed on global stocks. The crisis in Eastern Europe underscored the risk of investments in emerging markets, triggering a “sell Korea” spree and sending the won’s value plunging.

Oh Hyeon-seok, head of investment information at Samsung Securities, said, “Chances are high that GM could file for Chapter 11 at the government’s initiative, and if that happens, the market will inevitably be affected in the short-term.”

“As expectations still remain for recovery, however, the KOSPI will fluctuate between 990 and 1,320 points for the time being.”

jarrett@donga.com