South Korea‘s authorities said on Tuesday they would keep close tabs on the widening volatility in the markets in the United States that have cast a shadow on stock markets here.

“We will closely watch on how the US market volatility would impact local markets,” the Bank of Korea Gov. Lee Ju-yeol told press Tuesday.

Financial Supervisory Service Gov. Choe Heung-sik also asked high-ranking officials in a meeting to brace for negative impacts, saying the constant rise in stock price and the fears of US interest rate hike have posed a downward pressure on the stock markets.

Choe also pointed to the possible re-emergence of geopolitical risk after the 2018 PyeongChang Olympics ends.

The remarks came as US stock markets have continuously reeled from hawkish signs from the US Federal Reserve. On Monday, Dow Jones Industrial on Monday sank 4.6 percent, the broad-based S&P 500 fell 4.1 percent and tech-heavy Nasdaq Composite dropped 3.8 percent. 

Stock markets in Korea subsequently fell sharply in the morning trades Tuesday, but in the afternoon recouped from earlier losses. The top-tier Kospi stumbled 1.5 percent, while the second-tier Kosdaq remained nearly flat. Foreigners net sold 283.1 billion won ($260 million) worth of shares on Kospi.

Samsung Electronics, Kospi market bellwether, fell 1 percent, despite the release of its Vice Chairman Lee Jae-yong following a lighter sentence on charges of bribery Monday.

The recent falls in stock prices are unlikely to be an end, analysts said.

Lee Eun-taek, an analyst at KB Securities, said the stock plunge will cause another drop in the market here, while the market correction would last for about 2-3 months, citing previous cases when the US stocks fell over 6 percent in two trading days.

Another analyst, Park So-yeon of Korea Investment & Securities, recommended investors turning to other sectors than the tech sector.

“As profit estimates for the IT sector are being revised down, Korea’s stock market will likely move in a boxed range with the upper-end remaining closed for the time being,” Park wrote in a note Tuesday. “The warmth should continue to spread to cyclicals, consumer discretionary and small/mid-cap stocks,” Park wrote.

Local currency weakened against the dollar, maintaining the losing streak for four consecutive trading days. The Korean won was trading at 1,091.5 won against the greenback, up 3 won in a day, and up  23.6 won in four days.

Bond markets here slightly recovered in closing. The three-year sovereign bond yield slid 3.4 basis points Tuesday and came to 2.253 percent, while the 10-year bond yield reached 2.504 percent, down 5.4 basis points from a day prior, according to data by the Korea Financial Investment Association. The 30-year bond yield fell 4.5 basis points. 

When bond yield increases, the bond price inversely falls, and vice versa, meaning Tuesday’s market showed a bullish trend.

By Son Ji-hyoung 
(consnow@heraldcorp.com)