South Korean Stocks, Currency Slump on Economic Growth Concern

By Kyung Bok Cho and Kim Kyoungwha

Sept. 1 (Bloomberg) -- South Korean stocks fell to the lowest since March 2007 while the won weakened below 1,100 a dollar for the first time in almost four years on mounting concern Asia's fourth-biggest economy will weaken.

LG Electronics Inc., Asia's second-largest handset maker, tumbled 9.8 percent, the most since May 2004, after U.S. consumer spending slowed. Korean Air Lines Co. plunged 15 percent as the won declined, driving up dollar-denominated fuel bills.

The Kospi index declined 57.78, or 3.9 percent, to 1,416.46 as of 2:45 p.m. in Seoul, the steepest fall since Jan. 22. The currency fell 2.6 percent to 1,117.50 against the dollar, according to Seoul Money Brokerage Services Ltd.

``The currency is a measure of how well the economy is managed, so the sudden declines in the won reflect a negative view on Korea,'' said Seo Jung Ho, a director of equities at UBS Hana Asset Management Co. in Seoul, which manages the equivalent of $2.7 billion in equity funds. ``Without any immediate factors in sight to calm the situation down, people should take a conservative stance on the markets.''

South Korea's Financial Services Commission said today that pension funds should use the ``exaggerated'' slump in stocks as a buying opportunity. The economy grew 4.8 percent last quarter from a year earlier, the weakest pace in more than a year, while manufacturers' confidence for August sank to the lowest in three years. A falling won drove up the costs of importing commodities and lifted inflation to near the highest in a decade.

Inflation Slows

South Korea's consumer-price inflation slowed to 5.6 percent in August from a 10-year high of 5.9 percent the previous month, providing room for the central bank to refrain from adding to last month's interest-rate increase, according to figures from the statistics bureau today.

LG Electronics, Asia's second-largest handset maker, lost 9,800 won to 91,700. Samsung Electronics Co., the world's biggest computer-memory maker, retreated 2.7 percent to 502,000, the lowest since July 5, 2005. Credit Suisse Group cut its price estimate for Samsung by 11 percent to 630,000 won in a report, saying all of Samsung's key businesses are slowing down and the magnitude of the downside is ``surprising.''

Consumer purchases in the U.S. rose in July at a third of the previous month's pace, while prices surged the most in 17 years, the commerce department said on Aug. 29. The U.S. is the world's biggest economy and the second-largest destination for South Korean exports, after China.

Exports

South Korean exports, which account for two-fifths of the nation's economy, increased 20.6 percent in August from a year earlier, the Ministry of Knowledge Economy said today.

``The exports data was below consensus,'' said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of Credit Agricole SA. ``It's a challenging backdrop for Korea with less global demand, more inflation at home and authorities who don't want to raise interest rates as they want to protect domestic demand.''

Fuel-dependent companies fell on speculation a weaker won will increase their dollar-denominated fuel bills. Korean Air, the nation's biggest carrier, fell to 33,000, the most since the terrorist attacks of Sept. 11, 2001 in the U.S. Hanjin Shipping Co., the largest South Korean shipping line, dropped 13 percent to 24,300 won, the most since March 12, 2003.

Shipbuilders, who expected the won to rise this year and bought forward currency contracts to hedge their dollar- denominated orders, declined on concern the unanticipated depreciation will increase non-operating losses.

Dollar Orders

Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest maker of ships, slid 10 percent to 31,400 won, the lowest since March 18. Samsung Heavy Industries Co., the second largest, lost 4.6 percent to 29,900, the lowest since March 24.

The won extended last month's 7 percent loss, the biggest since the Asian financial crisis in 1998 that drove the nation to the brink of default. Won-buying by the government to check the slide failed to stop the currency from weakening, according to Roh Sang Chil, a currency dealer at Kookmin Bank in Seoul.

``The market is receiving a lot of orders for the dollar from foreign stock sales and oil importers,'' Roh said. ``Offshore players are staying on the buy side too, despite caution about the intervention.'' Central banks intervene in currency markets by either selling or buying foreign exchange.

The won slid 19 percent against the dollar this year as price increases and a slowing economy prompted bond and stock funds to move money out of South Korea. Fund managers outside the nation sold more Korean shares than they bought for a 10th day, stock exchange data showed.

Five-year government bonds dipped, snapping a four-day gain, before the release of the inflation data. The yield on the 5.25 percent note due March 2013 rose 5 basis points to 5.91 percent, according to Korea Exchange. The price fell 0.20, or 20 won per 10,000 won face amount, to 99.91. A basis point is 0.01 percentage point.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net