Deputy Prime Minister and Finance Minister Hyun Oh-seok said Monday that the government was ready to implement countermeasures against increased capital-flow volatility stemming from the so-called Bernanke Shock.

In a meeting with the ruling Saenuri Party, Hyun added that Korea’s economic fundamentals were still intact with a continued current account surplus and few short-term foreign borrowings that limited its exposure to an exit from quantitative easing.

Shin Je-yoon, chairman of the Financial Services Commission, said that the markets were taking their “natural” course. He added that investors were overreacting to the U.S. monetary phaseout plan that has raised concerns over whether or not Korea had enough liquidity to cushion the shock.

The FSC chief said that the regulatory body planned to put in place measures to safeguard the corporate financing market against negative spillover effects from the latest capital trend.

The government-party meeting was held amid concerns that a tightened U.S. monetary policy that is expected to follow the exit would negatively affect Korea’s economy.

Foreign investors continued to unload their equities and exchange their Korean currency holdings for U.S. dollars despite assurances by finance leaders that Korea’s economy remained fundamentally sounder than most emerging markets.

Institutional and retail investors’ shift to buying mode was not enough to avert the benchmark KOSPI index from dipping below the 1,800 threshold, closing at 1,799.01, down 1.31 percent, on Monday.

The Korean won lost about 7 won against the safe-haven greenback at 1161.4 won.

It remains to be seen how long foreign investors will continue dumping their Korean equity holdings given that their investments significantly account for almost 40 percent of stock market capitalization.

They sold their shares over the last 12 consecutive trading days, the second-longest slide since May last year when they divested for 18 straight days.

Korea, prone to external macroeconomic conditions, has seen the highest outflow of foreign capital worth some $4.5 billion among seven Asian emerging markets over the past month due to increasing expectations of the U.S. unwinding its quantitative easing. Taiwan came in second, seeing an outflow of about $3.2 billion.

This latest capital movement is putting regulators and policymakers on alert against the possibility of a wide-scale “exodus of foreigners” who are literally cashing out and taking their money back home, especially to the U.S. where Federal Reserve Chairman Ben Bernanke announced plans to taper its money easing.

The U.S. Fed has invested about $2.5 trillion in treasuries since the global financial crisis erupted in 2008.

This move has led capital to be reinvested in Asian emerging markets that offered higher yields than the U.S. or Europe. Since then, Korea has seen a foreign capital inflow of more than 300 trillion won to the Korean stock and bond markets.

Analysts say that the Korean markets seemed to be overreacting to the monetary exit in the U.S., which plans to gradually conclude its bond purchasing as its economy improves.

“This would be positive for Korean exports in the long run,” said Lee Sang-jae, an economist at Hyundai Securities.

Korea, instead, should be more concerned about China, the country’s biggest export destination, whose government plans to beef up its risk management on overleveraged banks that have contributed to a freeze in the credit markets, analysts said.

By Park Hyong-ki (hkp@heraldcorp.com)