Calling for calm, gov't vows to respond to 'exceptional' stock volatility

The financial authorities of Korea said measures to mitigate stock market volatility will be implemented if necessary, while noting that Monday's nosedive was "irregular."

Finance Minister Choi Sang-mok, left, and Financial Services Commission Chairman Kim Byoung-hwan during an emergency meeting on the macroeconomic situation held at the Korea Federation of Banks headquarters in central Seoul on Tuesday [MINISTRY OF ECONOMY AND FINANCE]

The government will implement measures to mitigate heightened stock volatility if necessary, the finance minister said Tuesday, as the Asian markets continued to roller-coaster.

The financial authorities noted that the latest fluctuation is “exceptional,” urging market participants to remain “calm and reasonable.”

"If market volatility reaches excessive levels, [the government] will address the situation jointly with relevant agencies according to the contingency plan, and maintain a joint response system to implement measures for market stabilization if needed,” said Finance Minister Choi Sang-mok, who doubles as deputy prime minister, during an emergency meeting among the country’s financial chiefs on Tuesday.

The meeting, which took place ahead of market opening in central Seoul, was attended by Bank of Korea Gov. Rhee Chang-yong, Financial Services Commission Chairman Kim Byoung-hwan, Financial Supervisory Service Gov. Lee Bok-hyun and Senior Presidential Secretary for Economic Affairs Park Chun-sup.

In its release Tuesday, The Ministry of Economy and Finance attributed the latest stock market turmoil to U.S. recession fears spurred by expectation-missing job growth data; weak corporate performance and the recent overvaluation of Big Tech shares; a stronger Japanese currency triggering the unwinding of yen carry trades; and the latest escalation of geopolitical tensions between Iran and Israel.

However, the ministry noted that “the Asian stock markets, including Korea, reacted excessively as the region began trading before the U.S. market could sufficiently assess such factors.”

It also added that the recent volatility is “irregular,” as external factors caused a significant correction only in the stock markets without having an actual impact on the real economy, foreign currencies or securities trades.

“The government and the Bank of Korea have sufficient capabilities to address market volatility caused by external impacts,” assured Choi.

The finance minister urged market players to make “calm and reasonable decisions, while remaining cautious of excessive anxiety spreading in the market.”

Stocks in Korea, as well as Japan and Taiwan, recovered sharply on Tuesday after a historic drop during the previous session.

The benchmark Kospi shot up right after the market opened on Tuesday, soaring as high as 2,578.77 points, up 5.62 percent or 137.22 points from the previous day during mid-trading. The index closed at 2,522.15 points, up 3.3 percent or 80.60 points.

The sudden surge triggered a sidecar soon after trading began at 9:06 a.m., halting program trading of futures for five minutes after the Kospi 200 Futures index rose 5.06 percent.

On Monday, trading halts — both a sidecar and a circuit breaker — were activated due to a steep plunge, as the Kospi plummeted by 234.64 points, or 8.77 percent, to close at 2,441.55, the biggest-ever nosedive recorded in Korea.

Analysts also assessed Monday’s record stock market drop as excessive, largely expecting the Kospi to generally stay above the 2,500 mark.

The recent selling spree was “excessive,” noted Park Seung-young, an analyst at Hanwha Investment & Securities, explaining that “the latest drop has not been fully based on the market fundamentals.” Park retained the movement range for the Kospi this year at 2,500-3,000.

“The expectation-missing readings of the U.S. Purchasing Manager Index in manufacturing for July and the employment rate have spurred worries of a potential economic recession, yet the possibility remains low,” the analyst said, adding that an unemployment rate in the 4 percent range and inflation in the 2 percent range are conditions for disinflation, not a recession.

iM Securities also maintained its forecast for the lower end of the Kospi's movement range at 2,550 in its report on Tuesday.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]