Tuesday, January 28th, 2014
SEOUL, KOREA - The ongoing emerging market rout is pressuring the Korean stock market hard. Last week, the Argentinian peso lost 11 percent in its value in a single day. The Turkish lira also lost its value almost 9 percent for one week until January 21.
On January 27, the KOSPI index declined 30.22 points (1.56%) from the previous trading day to 1,910.34. The plunge was attributed to the uncertainties surrounding the outcome of the upcoming U.S. Federal Open Market Committee meeting scheduled on January 28-29, coupled with the free fall of currency values in the so-called Fragile Five economies that include Brazil, India, Indonesia, Turkey, and South Africa.
With the 11-percent fall in the Argentinian peso value on the 23rd, economists suggested that the consumer prices would rise more than 30 percent this year. Last year's consumer price index for the Latin American country was 10.6 percent. The fact that Argentina holds only US$29 billion in foreign reserves makes the possibility of a sovereign default more believable. The country owes more than $150 billion in foreign debts.
Lee Kyung-soo, head of investment strategy for Shinhan Investment Corp., said, "Emerging markets such as Argentina, Turkey, South Africa, Chile, Peru, and Southeast Asian countries are facing a crisis. Other financially weak European nations such as Hungary and Romania are also in danger of sovereign default."
There are some analysts who suggested that the current situation would not develop into a global contagion and Korea would be free from the danger. Min Sang-il, Heungkuk Securities research center head, said, "There is little possibility for the current crisis situation to go on for a long time. It may be a short-term disturbance."