Financial Market 'Corona Panic'

Confirmed Cases Surge Daily, Investment Sentiment Freezes
KOSPI and KOSDAQ Plunge Over 3% Intraday
Won-Dollar Exchange Rate Also Soars to 1216 Won Range

[Image source=Yonhap News]

[Asia Economy Reporters Song Hwajeong, Kim Eunbyeol] As the number of confirmed cases of the novel coronavirus infection (COVID-19) surged, the financial market is also experiencing a strong shock. Both the KOSPI and KOSDAQ showed declines of over 3%, and the won-dollar exchange rate continued its sharp rise. The government bond yields fell below the base rate for the 3-year bonds and then the 5-year bonds as well.

As of 11:15 a.m. on the 24th, the KOSPI recorded 2,093.35, down 3.21% (69.49 points) from the previous day. The KOSDAQ fell 3.29% (22.01 points) to 645.98. The KOSPI fell below the 2,100 level, and the KOSDAQ fell below the 650 level. The top market capitalization stocks also showed weakness. Samsung Electronics fell 3.04%, SK Hynix 3.11%, and Samsung Biologics 3.70%, respectively.

With domestic confirmed cases exceeding 700 and rapidly increasing, investor sentiment appears to be quickly freezing. Yoo Seungmin, head of the investment strategy team at Samsung Securities, said, "So far, the market has mainly focused on the impact of consumption and production disruptions centered on China and has not been overly concerned about disruptions to the global value chain. However, if the infectious disease spreads to Korea and major Asian countries, uncertainty could increase significantly, extending the short-term adjustment trend in the global stock market."

The won-dollar exchange rate is also continuing its sharp rise. This is due to increased uncertainty in the financial market caused by COVID-19 and a preference for safe-haven assets. In the Seoul foreign exchange market today, the won-dollar exchange rate opened at 1,215.5 won, up 6.3 won from the previous trading day. Shortly after the domestic foreign exchange market opened at 9:06 a.m., the won-dollar exchange rate rose to 1,218.3 won but the increase slowed after Kim Yongbeom, the first vice minister of the Ministry of Strategy and Finance, stated, "If the exchange rate imbalance expands excessively, necessary measures will be taken." As of 10:16 a.m., the won-dollar exchange rate was trading in the high 1,216 won range.

After concluding the expanded macroeconomic financial meeting held at the Bankers Hall in Myeongdong, Seoul, Vice Minister Kim told reporters, "Currencies other than the dollar are showing weakness to the extent that even the yen is weakening," and added, "We need to look at whether this is a result of Korea's unique circumstances or a result of major movements in the international financial market." This is interpreted as meaning that it is necessary to observe the market further before concluding that the won's value has fallen solely because of the surge in COVID-19 cases in Korea.

Government bond yields also dropped sharply in the early trading session. As of 9:30 a.m. today in the Seoul bond market, the 3-year government bond yield was 1.157% per annum, down 3.0 basis points (1bp=0.01 percentage points) from the previous trading day, and the 5-year government bond yield was 1.229% per annum, down 4.1 basis points. Following the 3-year bond yield falling below the Bank of Korea's base rate (1.25% per annum) as of the close on the 21st, the 5-year bond yield also fell below the base rate during trading. The 10-year bond yield fell 3.8 basis points to 1.409% per annum. The 20-year and 30-year bonds fell 2.9 basis points and 3.7 basis points, respectively, recording 1.448% and 1.450% per annum. The fact that government bond yields have fallen below the base rate is interpreted in the financial market as reflecting expectations of a base rate cut by the Bank of Korea. The Bank of Korea will decide the base rate at the Monetary Policy Committee meeting scheduled for the 27th of February.

This content was produced with the assistance of AI translation services.