Stocks, Bonds, and Korean Won Face Triple Weakness Again

KOSPI Falls 6.05% from Previous Day
Exchange Rate Starts at 1264 Won, Maintains Upward Trend

[Asia Economy Reporters Song Hwajeong and Geum Boryeong] Concerns over a global economic downturn due to the novel coronavirus infection (COVID-19) have once again engulfed the financial markets. On the 23rd, the financial markets, which seemed to have stabilized briefly on the 20th, showed a 'triple decline' with prices of stocks, bonds, and the Korean won all falling.

As of 10:23 a.m. that day, the KOSPI recorded 1,471.72, down 6.05% (94.77 points) from the previous day, and the KOSDAQ recorded 439.86, down 5.96% (27.89 points). Although the stock market had surged on the 20th following the news of the Korea-US currency swap agreement, raising expectations for market stabilization, most of the gains were given back due to the sharp drop on this day. Due to the early sharp decline, sidecars suspending program sell orders were triggered in both the KOSPI and KOSDAQ markets. This marked the fifth activation of a sidecar in the KOSPI market and the fourth in the KOSDAQ market this year.

The won-dollar exchange rate also surged. As of 10:47 a.m. in the Seoul foreign exchange market, the won-dollar exchange rate rose by 33.19 won from the previous day to 1,278.82 won per dollar. The exchange rate started at 1,264 won and maintained an upward trend. Kim Hyojin, a researcher at KB Securities, analyzed, "The won's currency swap (CRS) rates have fallen into negative territory across all maturities since last week, reflecting a significant deterioration in dollar funding conditions." He added, "Foreign investors' selling of won-denominated assets has led to won depreciation, while increased overseas investment by domestic funds and hedging demand for derivatives have recently contributed to the sharp decline in the won's value." Kim further noted, "Although Korea's external soundness is better than other countries, considering the recent negative CRS rates, short-term foreign currency funding market instability, and global financial uncertainty, volatility is expected to continue until mid-second quarter."

Bond yields also showed an upward trend (bond prices fell). At 10:47 a.m. in the Seoul bond market, the 5-year government bond yield rose by 6.6 basis points (1bp=0.01 percentage points) from the previous trading day to 1.455% per annum. The 3-year government bond yield also increased by 4.8 basis points to 1.153%. Bonds, classified as safe assets, generally increase in value when stock indices fall, but when the entire financial market falls into panic, their value declines as well.

Kim Hyungryul, head of the Research Center at Kyobo Securities, said, "The current financial market is reflecting 'balance sheet risk,' where the financial condition of economic agents worsens if the epidemic continues to spread and the economic recession prolongs through the second quarter." He added, "Investment sentiment can partially recover only when two signals?the containment of the epidemic spread causing the market plunge and the easing of concerns over corporate credit tightening?are confirmed."

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