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Asia, Forex

S.Korea stocks slump over 2% on escalating tension with Japan, trade worries

* KOSPI index closes at lowest since June 2016 * Korean won posts steepest pct loss since Aug 2016 * South Korea benchmark bond yield falls to all-time low * For the midday report, please click (Updates to market close) By Hayoung Choi SEOUL, Aug 5 (Reuters) – South Korean shares tumbled more than 2% on Monday to close at their lowest level since June 2016 amid a worsening diplomatic row with Japan. Escalating trade tensions between the United States and China, South Korea’s largest export markets, added to the selling pressure. The Seoul stock market’s main KOSPI index closed down 51.15 points or 2.56% at 1,946.98, marking its sharpest daily percentage loss since May 9. Tech giant Samsung Electronics fell 2.2%, extending losses from last week when it reported a plunge in profit and warned Japanese curbs on the export of chip-making materials was blurring its outlook. Japan said on Friday it would remove South Korea from a list of countries that enjoy minimum export restrictions from Aug. 28, pushing the KOSPI down nearly 1%. Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced labourers and sparking a boycott by South Korean consumers of Japanese products and services, from cars, beer and pens to tours. “Japan’s tighter export controls may dent South Korea’s capital investment, exports and private consumption, which may lead to this year’s growth rate being lower than 2%,” said Lee Kyung-su, chief of Mertiz Securities research centre. South Korea on Monday announced plans to invest about 7.8 trillion won ($6.44 billion) in research and development for local materials, parts and equipment over the next seven years in an effort to cut reliance on Japanese imports. However, such measures are expected to take some time to kick in, according to analysts. The junior KOSDAQ extended its losses, triggering the bourse to suspend future linked trades for five minutes. It ended down 7.5%. The KOSPI’s pharmaceutical sub-index was the biggest percentage loser with a 8.8% drop on dampened sentiment across the sector after SillaJen’s halted clinical tests. Trade worries and a sudden slide in China’s yuan sent South Korea’s won to as low as 1218.3 per dollar. The yuan breached the 7 per dollar level for the first time in 11 years. The won was quoted at 1,215.3 per dollar on the onshore settlement platform , 1.42% lower than its previous close at 1,198.0, marking its sharpest daily percentage loss since August 2016. Amid greater appetite for safe-haven assets, the currency marked its lowest against the Japanese yen since July 2016. Foreigners were net sellers of 317.6 billion won ($261.35 million) worth of shares on the main board on Monday. Individuals were net sellers of 441.7 billion won, with analysts seeing some forced liquidations. Amid the protracted trade war between the United States and China, The KOSPI has fallen 4.61% so far this year, and lost 6.0% in the previous 30 trading sessions. The won has lost 8.2% against the U.S dollar so far this year. In money and debt markets, September futures on three-year treasury bonds rose 0.29 points to 111.26, while the 3-month Certificate of Deposit rate was quoted at 1.50%. The most liquid 3-year Korean treasury bond yield fell by 7.5 basis points to 1.186%, while the benchmark 10-year yield fell by 9.6 basis points to all-time low of 1.256%. ($1 = 1,215.2500 won) (Reporting by Hayoung Choi; Editing by Shounak Dasgupta & Kim Coghill)

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