On September 1st, the Korean Kospi index dropped nearly 60 points to 1,414.43. The market's reaction coincided with the article published by the London based Times newspaper with a hawkish title of "Korea's Black September".  While many markets in Asia declined on the 1st trading day in September, the Kospi's decline stood out the most reflecting the nervous sentiments among Korean investors.

Analysts point out three major causes for concern; 1. growing concerns on the corporate liquidity  2. decline in corporate earnings coupled with the global economic slowdown  3. weakening Korean currency despite the intervention by the Korean central bank.

According to the Times report, the government wasted 20 billion dollars in July alone in an effort to defend its currency in the midst of drying up its own dollar reserves due to the expected 50 billion dollar loss from the Fannie Mae and Freddie Mac investments that are on the verge of insolvency. The failed intervention efforts and the decline in forex reserve may further drive foreign investors out of Korea which in turn further exacerbate the exchange rate down the road.

On the corporate front, following the last week's announcement by Doosan Infracore, Inc., investors fear further announcements from the major conglomerates.  And larger than expected Trade Balance report for August from the commerce department enlarged the concerns in the markets.

Analysts worry that the liquidity problem in the banking system and the global slowdown in the business activities prevent any hope for corporate recovery of earnings anytime soon. 

09/01/2008

econ.la
Photo provided by MK Korea