Seoul markets warned of volatility from China Evergrande debt, US tapering risks

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Seoul authorities warned of volatility in Korean capital markets from the potential collapse of China’s real estate behemoth China Evergrande Group and jitters over a U.S. monetary tightening.

The benchmark Kospi closed 0.41 percent lower at 3,127.58 Thursday after touching 3,107.98 during the trade that opened after a three-day Chuseok holiday break.

The secondary Kosdaq retreated 0.94 percent to 1,036.26 as the Korean markets somewhat reflected overseas losses during their break. The won fell 0.68 percent to 1,176 won against the U.S. dollar.

After four straight days of losses, Dow Jones Industrial Average recovered 1 percent on Wednesday, local time, and S&P 0.95 percent. Nasdaq also increased 1.02 percent. The U.S. stock markets tipped earlier in the week due to various unfavorable factors including bankruptcy fears for China Evergrande Group, once the country’s second-largest real estate developer.

The property giant saw shares slump to its seven-year low on disclosure of snowballing debt.

Lee Eok-won, vice minister of economy and finance ministry, on Thursday warned of volatility from the deleveraging of the Chinese company and normalization in the ultra-loose monetary policy in major economies.

Presiding macroeconomic and financial market meeting, Lee projected increased uncertainties and volatility from the process of U.S. tapering.

He stressed on the need of risk management and vigilance against the negative impact on the Korean market.

Lee Seung-heon, deputy governor at the Bank of Korea, said Thursday that the September Federal Open Market Committee (FOMC) meeting “overall met market expectations” but risk remains as the Fed’s monetary policy normalization “could come faster than expected.”

The Fed policymakers maintained its current target interest rate in the range of 0 percent to 0.25 percent and will continue buying a total $120 billion in treasuries and other assets each month. Fed Chairman Jerome Powell, however, noted that tapering “may soon be warranted” and that participants generally viewed that “so long as the economic recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”

He also saw the possibility for increased volatility from the Evergrande risk.

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