S. European Crisis Batters World Stock Markets

The fiscal crisis facing southern Europe rattled world financial markets again Thursday, causing falls in stock markets across the globe.

Korea’s benchmark stock index KOSPI fell under 1,700 as foreign investors seeking stable assets posted their highest net sales in two years. The Korean won also plummeted against the greenback.

Foreigners net sold 740 billion won (646.85 million U.S. dollars), causing the KOSPI to fall 34.04 points (1.98 percent) from Tuesday (Wednesday being a national holiday) to close at 1,684.71. Foreign net selling reached its highest level since 973.1 billion won (850.6 million dollars) on June 12, 2008.

In Northeast Asia, China’s Shanghai Composite Index fell 4.11 percent, Japan’s Nikkei dropped 3.27 percent, and Taiwan’s Taiex dipped 1.53 percent.

The U.S. Dow Jones industrial average fell more than two percent from Tuesday to Wednesday. European stock markets also plunged around five percent over the same period, and their performance did not improve Thursday.

The Korean won fell 25.8 points (2.31 percent) from Tuesday to close at 1,141.3 per dollar, the biggest drop since the fall of 32.3 points (2.52 percent) on July 12 last year. The won-dollar rate also exceeded 1,140 for the first time since March 29.

The fiscal crisis in southern Europe received another serious blow after Moody’s announced that it will consider downgrading Portugal’s credit rating. The announcement coupled with S&P’s decision to downgrade Spain and Portugal’s sovereign ratings battered investor sentiment. Adding to the jitters was rumors that Spain, with the fourth-largest GDP in the euro zone, will need a relief loan.

Choi Seok-won, head of bond analysis at Samsung Securities, said, “If the fiscal shock originating from Greece worsens due to the fiscal difficulties of the U.K. or Spain, Korean stocks will fall up to 20 percent from their peak. If Europe’s fiscal difficulties are effectively dealt with before things get out of control, Korea’s stock prices will fall 10-15 percent and the won-dollar rate will stay around 1,100 – 1,150.”

“Because global liquidity has nowhere to go except to emerging markets such as Korea, Korea’s stock prices will rise and the foreign exchange rate will get stabilized late this year.”

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