Things suddenly turn for the South Korean markets

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(Bloomberg) – South Korean markets ended a rough week ahead of a public holiday on Monday with record foreign capital outflows from chipmakers and record Covid cases that sparked panic sales.

The benchmark Kospi fell for the seventh day in a row on Friday, the won hit a ten-month low, and global funds dropped record amounts of key semiconductor stocks such as Samsung Electronics Co. Korean stock market and its currency caused losses in Asia this week.

“The won, bonds and stocks are moving in the same direction as Korea loses its appeal in the market,” said So Jaeyong, an economist at Shinhan Bank. “The South Korean won looks much more vulnerable among emerging Asian currencies and it can drop to 1190 per dollar at any time.”

Rapid capital outflows rocked one of Asia’s best-performing stock markets this year, underscoring the country’s dependence on tech companies to drive growth. Meanwhile, a peak in the delta variant and a low vaccination rate is undermining efforts to contain the worst wave of the virus in South Korea.

With global semiconductor stocks under pressure, foreign funds have headed for the exit of the world’s two largest memory chipmakers. As of Thursday of this week, they have sold a net worth of 5,000 billion won ($ 4.3 billion) of Samsung Electronics and SK Hynix Inc. shares, including a record daily exit on August 12. The pair has lost more than $ 55 billion in market capitalization since August 12. 6.

Samsung Electronics fell nearly 9% this week, its worst drop in five days since the pandemic outbreak last March.

“The massive sales by foreign investors on Samsung Electronics and SK Hynix have been very aggressive,” said Huh Jae-Hwan, strategist at Eugene Investment & Securities. “The pain in the memory sector is not over.”

The won fell more than 2% this week to about 1,169 to the dollar, while the Kospi fell 3%, its worst weekly performance in nearly six months.

Yield premiums on South Korean corporate bonds have increased in recent weeks. Three-year public debt spreads climbed 11 basis points from this year’s low in February to 42 basis points, and are their highest since June, according to data compiled by Bloomberg.

Pressure rate

The sharp drop in the currency adds to the motives for a rate hike by the Bank of Korea, which has stressed the need to normalize policy this year. While the weakness of the won is often seen as stimulating exports, a rapid depreciation heightens concerns about capital outflows and instability in financial markets. The central bank is due to meet on August 26.

With new daily infections exceeding 2,000 for the first time this week, authorities are considering stricter social distancing rules. South Korean Prime Minister Kim Boo-kyum urged citizens to refrain from travel this weekend.

It’s still too early to call Friday’s “panic sell” the start of a bear market, according to Han Jiyoung, analyst at Kiwoom Securities Co. The Kospi is still up 10% so far this year, even after the latest declines, outperforming a little changed MSCI Asia-Pacific index.

“I’m sure a lot of people have their doubts and anxiety about the incredibly fast cash outflows and panic selling,” Han said, adding that investors were partly reducing their positions preemptively before the Monday vacation. “But the Korean stock markets have not yet moved away from the bull market. It is too early to tell that the tide has turned.

(Updates with closing prices; Add performance bonuses on corporate bonds in ninth paragraph)

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