S. Korean financial market recovers from Lehman shock

By Park Bo-ram
SEOUL, Sept. 7 (Yonhap) -- The South Korean financial market has bounced back
from the global financial crisis sparked by the collapse of Lehman Brothers a
year ago, but it remains to be seen whether the recovery is sustainable, analysts
said Monday.

The failure of the U.S. investment banking giant prompted an exodus of foreign
funds from the local financial market, wrecking havoc on the stock market and
sending the local currency to the lowest levels in a decade.
The benchmark Korea Composite Stock Price Index (KOSPI) plunged to 938.75 points
on Oct. 24, dropping below the 1,000-mark for the first time since June of 2005.
The stock gauge plummeted nearly 40 percent last year.
Escalating aversion to risk pounded the South Korean foreign currency market,
sending the local currency to an 11-year low of 1,570.3 won to the U.S. dollar as
of March 2.
The plummeting local currency gave rise to "March crisis" rumors, which terrified
investors that the local unit might suffer further slumps as Japanese firms that
close books in March were expected to withdraw funds and take them home.
Amid skyrocketing costs of foreign currency funding, local banks were feared to
fail to reservice their maturing foreign debts.
The rumor turned out to be groundless, however, upon a harmless ending for the
month and the local financial market began to regain strength since.
Boosted by massive fiscal spending and the Bank of Korea's aggressive rate
cutting, the benchmark stock index surged more than 43 percent so far this year
and the South Korean currency also strengthened 26 percent to the greenback since
the March 2 trough.
"South Korea joined other Asian countries emerging faster from the global
financial turmoil," said Song Min-kyu, an analyst at the state-run think tank
Korea Development Institute (KDI).
"Speedy government measures and strong exports bolstered the steep gains in the
stock and foreign currency market," Song said.
Other analysts agree the fast recoveries were possible thank to the government's
massive stimulus measures and better-than-expected corporate earnings by local
exporters.
In April, the parliament approved a 28.4 trillion won (US$22.7 billion) extra
budget aimed at generating jobs and boosting domestic demand. The Bank of Korea
slashed its policy rate by a combined 3.25 percentage points from October to
February, keeping the rate at a record low of 2 percent since, in a bid to spur
an insipid economy.
The central bank also provided 27.5 trillion won in liquidity to the financial
system in forms of bond repurchases, dollar auctions and bank recapitalization
funds.
Assuring the return from a chaos, global credit appraiser Fitch Ratings raised on
Sept. 2 its outlook for sovereign credit rating on South Korea to "stable" from
"negative."
Experts say the local currency market will not likely suffer a repeat of the
foreign currency crunch, given the stabilization in emerging financial markets.
"Positive recent changes in emerging markets indicate that the won will not
fluctuate as much as in the past," said Jang Bo-hyung, an analyst at Hana
Institute of Finance, a research arm of fourth-largest financial firm Hana
Financial Group Inc.
Still, it still remains to be seen whether the upward momentum will continue
because the outlook for future economic fundamentals is murky, analysts say. They
note solid economic growth should precede any meaningful recovery in the
financial market.
"How Asian economies -- which powered the recent turnaround here -- fare will
largely determine the prospect of the South Korean financial market," Song of KDI
said.
pbr@yna.co.kr
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