Sep

3

Korea: Ghost of Crisis Past?

Pete @ 4:31 PM | | Start a Discussion 

There has been a lot of chatter that Lehman is in talks with the Korea Development Bank and other suitors for a much needed investment:

  • Korean Bank Help for Lehman Appears In Doubt
    State-controlled Korea Development Bank (KDB) is in talks with Lehman over a possible joint investment with other Korean banks, but said it was still unsure whether there would be a deal.
  • Korea military fund may back Lehman bid
    South Korea’s Military Mutual Aid Association, a military pension fund, said on Wednesday it might consider making a joint investment in Lehman Brothers with state-run Korea Development Bank.

What strikes me is this: has anyone been paying attention to how the local Korean stock market has been performing? What effect might this have on the global markets?

  • IMF Says Korea Can Cushion External Shock
    A number of foreign banks and global economic organizations, including the International Monetary Fund (IMF), have discounted widespread rumors about a September crisis for Korea, stressing that the country is now in much better shape than 1997.
  • Kim Says Fears of South Korea Crisis Are ‘Groundless’
    Fears that South Korea is facing a financial crisis are “groundless,” Vice Finance Minister Kim Dong Soo said after a government meeting called in response to the slump in stocks, bonds and the currency.
  • Net Assets of Equity Funds Fall to 11-Month Low
    The net asset value of equity funds, including both domestic and overseas, plunged to their lowest level in 11 months, amid a bearish run on the stock market.
  • Korea Won’t Face Repeat of 1997 Crisis, Moody’s Says
    South Korea won’t face a repeat of the 1997 currency collapse because local banks and companies have more robust finances, Moody’s Investors Service said.
  • Vulnerable Won
    The South Korean won could weaken further, forecasts Dariusz Kowalczyk, chief investment strategist at CFC Seymour. He tells CNBC’s Amanda Drury the won could reach 1,200 against the dollar by year-end.
  • BoK & BoT Need to Hike Rates
    The Bank of Korea and Bank of Thailand need to increase their interest rates to order to prop up their weakening currencies, opines Andrew Freris, senior investment strategist, Asia at BNP Paribas Private Bank. He tells CNBC’s Martin Soong why.
  • Korea May Raise Key Rate to Stem Won’s Drop, Goldman, UBS Say
    The won has slumped 12 percent in the past month and could trigger “an inflation-depreciation spiral if allowed to persist,” Kwon Goohoon, a Goldman economist in Seoul, said in a Sept. 2 report.

The Charts

Let’s take a closer look at the Korea Index Fund and some of the bigger Korean ADRs that trade in the United States.

iShares MSCI South Korea Index Fund (EWY)

POSCO (PKX)

Kookmin Bank (KB)

Shinhan Financial Group (SHG)

LG Display Co (LPL)

As we can see from the above charts, they all are showing weakness. Weakness in Korea might mean weakness to spread to other emerging markets?

  • Thai Baht Holds Near 12-Month Low; Central Bank to Slow Drop
    Thailand’s baht held near a one-year low after central bank Governor Tarisa Watanagase said political unrest may further erode investor confidence. Bonds fell.
  • Thai PM declares state of emergency
    Thailand’s army chief on Tuesday ruled out using troops to end a siege by anti-government protesters of Bangkok’s Government House, even after the prime minister declared a state of emergency in the city.
  • Australia makes first rate cut in seven years
    Australia’s central bank yesterday cut its benchmark interest rate for the first time in almost seven years as it responded to indications that inflationary pressures and economic growth might both be easing.

Haven’t we seen this movie before?

Charts shown in today’s post have our Relative Momentum Indicator (RMI) and InVivo Universal Stops applied.

Questions and Comments

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