Dubai crisis triggers market jitters in S Korea

18:29, November 27, 2009      

Email | Print | Subscribe | Comments | Forum 

The South Korean markets tumbled Friday on Dubai's debt problems with share prices and the foreign exchange rate plunging and bond prices soaring, despite of the local economy's allegedly minimal exposure to the Mid-Eastern citystate, local media said.

South Korea's benchmark index, KOSPI, dropped 75.02 points, or 4.69 percent, and the South Korean currency plummeted 20.2 won, hitting 1,175.5 won against the U.S. dollar, while the yield on a 3-year treasury bond retreated 0.14 percentage point to 4.05 percent.

According to local analysts, the tumble in financial markets on Friday came as investors turned more risk-averse due to Dubai's liquidity squeeze.

On Wednesday, Dubai World, a state-owned holding company in the United Arab Emirates, called for a six-month repayment moratorium on its debts of around 60 billion U.S. dollars.

The tumble in local financial markets, however, is likely to continue for the time being as the global market, which faced a financial turmoil last year as Lehman Brothers collapsed, is expected to be struck by Dubai's financial problems, local Yonhap News Agency said.

In particular, the local currency will likely slide against the U.S. dollar, at least temporarily, due to increased costs of foreign currency borrowing from European banks that face potential losses on about 40 billion U.S. dollars in exposure to Dubai, Yonhap said, quoting Chun Chong-woo, an analyst at Samsung Securities Co.

The Dubai crisis, however, is not expected to bring about a major impact on the South Korean economy, considering the amount of South Korea's investment in the citystate, local news channel MBN said.

According to a press release by the Financial Supervisory Service, South Korean financial institutions' exposure to Dubai came in at 88 million U.S. dollars, which is only 0.4 percent of all external credit of 52.8 billion U.S. dollars, as of the end of September.

Of the total amount, exposure to Dubai World estimated at 32 million U.S. dollars, it added.

"Considering Dubai's reliance on debts was not grave, the Dubai crisis will not last as long as the East European financial turmoil early this year," Park Hee-chan, economist at Mirae Asset Securities Co., also said, adding to a positive prospect on the economy.

In addition, with the country turning into a net creditor in the third quarter of the year, the impact on the fundamental of local financial institutions will not be serious, Chun told Yonhap.

"As for now, the crisis is expected to affect the timing of the exit strategy or a slowdown in the real economy recovery in the short term," Park Tae-keun, analyst at Hanwha Securities Co., said, adding that it is not likely to expand market risks.

Source: Xinhua
  • Do you have anything to say?
Special Coverage
Major headlines
Editor's Pick
Most Popular
Hot Forum Dicussion