KOSPI crashes below 1,800 on eurozone woes

Seoul’s financial markets sank on Friday, with the benchmark KOSPI crashing below 1,800 points for the first time in five months as the eurozone crisis deepened.

Bank runs and downgraded credit ratings in Greece and Spain, coupled with discouraging U.S. economic reports that caused overnight losses on Wall Street, increasingly unnerved investors.

The KOSPI closed at 1,782.46 points on Friday, down 3.4 percent from the day before.

Samsung Electronics Co., the biggest blue chip traded on the Seoul bourse, tumbled 4.66 percent.

The tech-heavy KOSDAQ also plunged 4.15 percent to finish at 448.68 points.

The Korean won weakened against the dollar, with the exchange rate shooting past 1,170 won per dollar.

Seoul shares opened low on Friday, hours after international ratings agencies downgraded Greece and Spanish banks.

Fitch Ratings cut Greece’s credit rating from B- to CCC, the lowest possible grade for a country that is not in default, citing the “heightened risk” that Greece could leave the eurozone.

Moody’s Investor Service downgraded 16 Spanish banks including Banco Santader, the eurozone’s largest bank, citing a weak economy and the government’s reduced ability to support troubled lenders.

“The range of fluctuation is excessive,” Finance Minister Bahk Jae-wan told reporters in Seoul when asked about Friday’s market movements, while noting that Korea’s economic fundamentals were strong.

Financial Services Commission chairman Kim Seok-dong said Friday Seoul has contingency plans in case higher eurozone uncertainties cause increased volatility.

The FSC isn’t considering temporary short-selling for the time being despite heavy losses on the local stock market, according to Koh Seung-beom, the FSC’s director general of the financial policy bureau. Korea also has abundant foreign exchange liquidity, Koh said.

Analysts said market volatility will continue until the Greek general elections in June.

“The current stock prices are based on the presumption that Greece would fall into default,” said Kim Byung-yeon, an analyst at Woori Investment and Securities Co.

“What matters is how quickly the European leaders come up with a solution to the debt crisis in Greece.”

Foreign investors have sold off shares worth more than 3 trillion won ($2.55 billion) on the local bourse so far this month.

Finance Minister Bahk expressed concerns that financial market uncertainty triggered by eurozone fiscal debt problems could adversely affect ongoing efforts to stabilize the nation’s consumer prices.

The minister stressed that if the nation maintains steady growth despite global economic conditions, efforts need to be focused on curbing inflationary pressure.

By Kim So-hyun (sophie@heraldcorp.com)