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Korean Market Plagued by Uncertainty Market Q&A with Jane Kim, Jardine Fleming, Seoul September 17, 1999 Web posted at 10 p.m. Hong Kong time, 10 a.m. EDT
Q: The KOSPI, like most markets, emerged from a poor showing Thursday to make modest gains. The index is now at 925, up 1% from yesterday, but still down 55 points from Monday's opening. Let's focus on Thursday: Why the big (3.8%) fall? A: The No. 1 thing that markets dislike is insecurity.
A: The strength of the yen would obviously be positive to a degree, but you can't expect it to have an immediate impact on the market--it's more of a long-term issue. It would be good for the Korean economy, yes, if the yen were to stay at 110 for the next six months. But we saw it rise all week to hit 103, and nobody seemed to be in control. That's insecurity, that's uncertainty. So the yen was actually a negative factor in that it just contributed to the insecurity already around. Q: Another question is what Alan Greenspan will do. A: Yes, on Thursday people were antsy about interest rates and consumer prices and the U.S. markets. Everyone's afraid Americans are going to go on a selling spree before Y2K, and that creates insecurity. But on a daily basis, Korea doesn't watch the U.S. markets that closely; they don't really affect us usually. Q: Too preoccupied with Daewoo? A: We do have our own problems to worry about, and the Daewoo crisis is certainly one of them. But in and of itself, Daewoo's not the problem. It's got a lot of debt and it is fairly big, but it's not enough to cause a meltdown in the financial structure. The problem is that it's big enough to provide fodder for insecurity, and we have a very weak bond market. The lack of liquidity in the bond market with the Investment Trust Corporations (ITCs) is driving interest rates up. Interest rates have risen 20 to 40 basis points in the past week--their highest point all year--and once interest rates climb, the money market goes down. Yesterday, there was also a rumor that people were going to be panic-selling because they want their money out of the market during the Chusok holidays that are just around the corner. Q: Is the financial world happy with Kim Dae Jung? A: I don't think the political mood is positive or negative. Obviously Kim has been fairly good with attempting to reform the chaebol; he's been a completely new kind of politician. In terms of report cards, he definitely ranks higher than any of his predecessors, but in the long run what it comes down to is how much substance does all of this have? That's not something we're going to be able to determine overnight. But we've done more than almost any country in Asia to try to reform the old ways of doing business. We've come out of the financial crunch we were in last year, so it's all relative. Q: What's the biggest obstacle ahead? A: It looks like it's definitely the bond market, which is basically too small and not transparent enough. Korea's ITCs don't resemble what you would see in other markets, and they face serious problems if too many people try to redeem their money at once. And that is a threat in November, when people are allowed to receive 80% of the face value of bonds issued by Daewoo. Interviewed by Maureen Tkacik/AsiaNow Write to us at mail@web.timeasia.com Search for recent Market Q&As
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