May exports surge 53.2%; stock market cap rises to world's 6th largest

Margin lending nears 38 trillion won ($25.1 billion), raising leveraged-investment risk concerns

Authorities pledge coordinated response to rising Treasury bond volatility

The won fell to the 1,530-per-dollar level Thursday amid warnings from top economic and financial authorities that portfolio rebalancing and profit-taking by foreign investors are amplifying volatility in the foreign exchange market.

Officials said they are maintaining heightened vigilance to prevent anxiety from spreading in an environment of elevated external uncertainty, and pledged to take immediate action should excessive one-sided market moves emerge.

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol (third from left) poses for a photo with Financial Supervisory Service Director General Lee Chan-jin, Bank of Korea Governor Shin Hyun-song and Financial Services Commission Chairman Lee Eok-won at a market situation review meeting held at the Government Seoul Complex in Jongno-gu, Seoul, on Thursday. [Yonhap]
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol (third from left) poses for a photo with Financial Supervisory Service Director General Lee Chan-jin, Bank of Korea Governor Shin Hyun-song and Financial Services Commission Chairman Lee Eok-won at a market situation review meeting held at the Government Seoul Complex in Jongno-gu, Seoul, on Thursday. [Yonhap]

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol convened a joint market situation review meeting Thursday at the Government Seoul Complex with the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service to assess recent trends and risk factors in the financial and foreign exchange markets and discuss response measures.

Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eok-won and Financial Supervisory Service Director General Lee Chan-jin attended the meeting.

Participants assessed that domestic stock markets continue to perform well on the back of solid economic momentum, noting that May exports reached $87.75 billion — up 53.2 percent from a year earlier. They also noted that South Korea's stock market capitalization has surpassed India's to rank sixth in the world.

However, officials expressed concern over a sharp rise in margin lending, which reached 38 trillion won ($25.1 billion) as of June 1. They agreed to monitor related trends regularly through the market situation review meeting and to strengthen preemptive risk management and investor protection.

On the foreign exchange market, participants said volatility is widening despite a record-high current account surplus, driven by the ongoing war in the Middle East and continued net selling of domestic shares by foreign investors.

The won opened Thursday's Seoul trading session at 1,530 per dollar, up 13.6 won from the previous session — the highest opening level since March 31, when it opened at 1,519.9 won. It was also the first time the opening rate exceeded 1,530 since March 2009, during the global financial crisis.

The won surged in offshore markets Wednesday, when the Seoul foreign exchange market was closed for the June 3 local elections, after the Office of the United States Trade Representative announced additional tariff measures and Iran launched airstrikes on Kuwait's airport.

Participants said temporary portfolio rebalancing and profit-taking by foreign investors following the sharp rally in domestic equities are further amplifying volatility on the supply-and-demand side.

Foreign investors' holdings of domestic shares grew sharply from 1,312 trillion won ($868 billion), a 32.9 percent share, at the end of last year to 2,991 trillion won ($1.98 trillion), or 38.3 percent, as of Tuesday. However, foreign investors have net sold a total of 127 trillion won ($84 billion) worth of domestic shares so far this year, including 66 trillion won ($43.7 billion) over the most recent 18 consecutive trading sessions.

"We are watching the situation closely with a high level of vigilance to prevent anxiety from spreading amid elevated external uncertainty," Koo said. "We will take necessary measures immediately against any excessive one-sided moves."

On the bond market, participants said Treasury bond yields have grown more volatile due to global interest rate trends, inflation concerns and strengthening expectations of a domestic benchmark interest rate hike.

Participants agreed to monitor market conditions closely, maintain tight communication with market participants, and coordinate a timely response among relevant agencies should excessive volatility arise.


y2k@heraldcorp.com