Korean markets tumble over China’s shaky recovery

Korean markets continued to fall on Thursday as China’s rebound hit a wall over the liquidity crunch in its property sector.

Electronic display boards at Hana Bank in central Seoul show Korea's markets on Thursday. [NEWS1]

Korean markets continued to fall on Thursday as China’s rebound hit a wall over the liquidity crunch in its property sector.

The Kospi has fallen for five consecutive trading days, reaching as low as 2,482.06 during intra-trading, down 1.73 percent from the previous day. But it partly recovered to close down 0.23 percent.

The won touched 1,343 during trading on Thursday, an annual low it previously reached on May 17. It closed at 1,342.

Markets weakened amid growing concerns over the spread of risks caused by the slump in China’s property market, which faces challenges as home prices fall and a major property developer missed payments.

Country Garden Holdings, one of China’s largest developers, said last week it has not paid two bond coupons that were due on Aug. 6 totaling $22.5 million. It has until early September to make the payments.

The developer, which had total liabilities of around $194 billion at the end of last year, warned that it expects to post a net loss of up to 55 billion yuan ($7.59 billion) for the first half of this year compared with earnings of around 1 billion yuan in the previous year.

Economic woes were also witnessed in other indicators.

The country’s retail sales rose by 2.5 percent in July from a year earlier, according to its National Bureau of Statistics on Monday. It was lower than the expected 4.5 percent increase.

Industrial production rose by 3.7 percent in July from a year ago, which was below the 4.4 percent forecast by analysts.

The Korean government on Wednesday said the immediate impacts on Korea’s financial markets and companies will be “highly limited."

“But it’s difficult to expect a single future direction since measures by the Chinese authorities and financial institutions need to be observed,” said Finance Minister Choo Kyung-ho, while admitting that China’s economy could “impact the surrounding countries.”

Choo noted its economic forecast for recovery in the second half remains unchanged. The ministry expects Korea’s economy to grow 1.4 percent this year.

The ministry said it has strengthened the monitoring of the foreign property market in case of contagion fears.

It is estimated to have invested more than 50 trillion won ($35.2 billion) in overseas real estate as of March, according to local media reports. That is less than 1 percent of the total assets in the financial sector.

The Kospi has fallen more than 7 percent in two weeks in Sept. 2021, when property developer China Evergrande Group declared it was in default. The index dropped 7.8 percent in two weeks in August 2015 when Shanghai’s main share index plunged following the devaluation of the yuan.

BY JIN MIN-JI [jin.minji@joongang.co.kr]