KOSPI posts year’s worst drop of 115.7 points; U.S., European, Asian stocks extend slump


Korean stocks took a pounding again on Friday following steep losses in the United States and Europe amid renewed fears of a global recession.

The Korea Composite Stock Price Index posted the sharpest drop among major Asian stock indices on the day.

The benchmark KOSPI, which continued to gain early this week, plummeted by 115.7 points, or 6.22 percent to close at 1,744.88.

Based on closing prices, this was the “third biggest” daily fall in history, following a 126.5 point drop on Oct. 16, 2008 and a 125.91 percent drop on Aug. 16, 2007.

The local currency closed at 1,087.4 won to the greenback, down 13.4 won from Thursday’s close, the lowest in 10 days since it changed hands at 1,088.10 won on Aug. 9, dealers said.

The KOSPI also saw the total market capitalization of equities sink below 1 quadrillion to stay at 985.5 trillion won ($912.5 billion).

In particular, the Korea Exchange activated sidecar during the trading session as futures prices for KOSPI200 dropped sharply. This was the third time the sidecar triggered this year.

The sidecar scheme refers to a rule that lets the bourse operator suspend futures trading during periods of extreme market volatility.

When the KOSPI futures contract moves more than 5 percent from the previous close, the Korea Exchange limits program trading for five minutes in order to cool down the buying or selling spree.

The tech-heavy KOSDAQ fell by 33.15 points, or 6.53 percent, to close at 474.65. The sidecar and similar measure ― circuit breaker ― also went into effect on the secondary KOSDAQ market.

A report on the global economy from Morgan Stanley sent markets into a tailspin as the U.S.-based investment bank said a worldwide recession was “dangerously close.”

Morgan Stanley predicted that the eurozone will grow by only 1.7 percent this year, down from 2 percent, while U.S. growth will slide to 1.8 percent, compared to an earlier estimate of 2.6 percent.

It claimed that both the U.S. and Europe were both committing policy errors that were eroding consumer confidence and weighing down financial markets.

“Our revised forecasts show the U.S. and the euro area hovering dangerously close to a recession,” it reported.

The bank also said central banks should keep rates low and provide other forms of liquidity.

But it said initial conditions are better now. “Any plausible recession scenario in 2011-12 should be much shallower than in 2008-09,” Morgan Stanley said.

The plunge in Korea and major Asian markets followed a session that saw U.S. stocks plummet amid fears over a global economic slowdown.

After falling as much as 528 points, the Dow Jones Industrial Average closed Thursday down 419.33 points, or 3.7 percent, at 10,990.88.

The Standard & Poor’s 500 Index fell 53.21 points, or 4.5 percent, to 1,140.69, while the Nasdaq Composite Index dropped 131.05 points, or 5.2 percent, to 2,380.43.

By Kim Yon-se (kys@heraldcorp.com)